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Contract Notes

Contract Notes

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Published by: Neeraj Chhabra on Jul 28, 2012
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Indian Contract Act, 1872 Points

:
    For a contract to be a contract there must be intention of legal consequences in the minds of both parties. The test for contractual intention is objective not subjective. Not what the parties had in mind but what a reasonable person would think i.e. intention of parties. An offer need not be ascertained to one person but a contract is ascertained with that person who fulfils the conditions of the proposal. An offer of continuing nature is open to acceptance until it is retracted and an offer to find some info is retracted as soon as that info has been found.

Section 2 Interpretation Clause
a) Proposal is made in such a way that it asks for a confirmation or an assent. b) If someone accepts the proposal it becomes a promise. The second party makes promise. c) Promisor and Promisee. d) The consideration for promise is what the promise revolves around. e) An agreement is a set of promises or promise, which forms a part of the consideration. f) Promises from both ends. Reciprocal promises. g) Must be legal for an agreement to take place. h) If legally acceptable it becomes a contract. i) If one party proves it is illegal it is a voidable contract. j) If something legal becomes illegal it is not enforceable by law.

Proposal when accepted gives raise to an agreement such an agreement must be lawful.

Case

Section 3 Communication (Acceptance and Revocation)
The communication of proposals are deemed to be made by any act or omission of the party proposing by which he intends to communicate that proposal or which has the effect of communicating it.

 

Communication to third person does not classify as acceptance. Invitation to offer and acceptance of price before sale.

Offer expressed by conduct- implied offer

Offer expressed by writing or words- expressed offer General Rule: -Intimation of acceptance for a contract to be valid. Exception: - Mailbox Rule

Section 8 Offers to public, unilateral and bilateral contracts.
I have to accept your proposal and you also have to accept my reciprocal proposal for a consideration to be made.

Section 4 (Mailbox Rule)
   Communication is complete when one knows of proposal. Has knowledge of the proposal. Communication of acceptance happens when acceptor sends acceptance and after proposer receives it. Same for revocation.

An offer cannot be completed unless its acceptance has been brought to the knowledge of the person who proposed it.

Section 6
Revocation How Made:     Proposal can be revoked by communication. Lapse of time of acceptance, or lapse of reasonable time if time has elapsed. Failure to fulfill conditions of acceptance. Death or insanity of proposer.

A proposal maybe revoked at anytime before the communication of its acceptance is put in course of transmission so as to be out of the power of the acceptor.

Section 7
Acceptance How Made:   Absolute and unqualified acceptance. Must be accepted in a reasonable manner in a reasonable time frame and if it is not made in the manner prescribed, if he fails to return the acceptance and ask for a fresh one according to the prescribed manner he accepts the acceptance.

Comments:   Offer and acceptance must be absolute without leaving any room for doubt. If the acceptor puts in new conditions the contract is not complete until the proposer accepts these new conditions.

Communication of revocation technically should be from the offeror himself but incase of D v/s D and other cases it has been held that anyone can communicate this as long as the person is clearly informed of the same. Slight deviation is acceptable but if someone makes an acceptance beyond the prescribed means it could be held invalid. Section 5 1) A proposal maybe accepted or revoked 2) At anytime before the communication of its acceptance or revocation 3) Is complete as against the proposer or acceptor. The acceptance must be communicated. Provisional or tentative agreements are subject to contract and confirmation. An auctioneer can provide the manner in which the bid is to be revoked. An offer may lapse on expiry of time to accept. It as an offer to the customer to buy and there is no sale effected until the buyers offer to buy is accepted by the acceptance of the price. communication and commitment. Incase no time for acceptance has been mentioned then they refer to . The acceptor has to accept it before the time elapses.  An acceptance with a variation is just a counter-proposal. Advertisement which make offers are offers to negotiate or to receive more offers. Partial acceptance is also a counter proposal and therefore it falls in the same category. A shopkeeper‟s catalogue of prices is not an offer it is only an invitation to the intending customers to offer to buy at the indicated prices. When party makes a proposal with willingness to negotiate certain terms of the offer he is making an invitation to offer. Offer and acceptance are based on three cardinal principles certainty. Mode and manner of acceptance holds great importance. An acceptance of a promise can be in implied terms. Revocation of bid at an auction before the hammer goes down. When no manner is prescribed a reasonable and usual manner is considered acceptable. A fresh proposal can supersede a previous proposal. Revocation can also be through print media if the offer has been made via the same media. Offer and invitation to treat Offer and invitation to receive offers are different. The acceptance can be only of the renewed part. A counter offer puts an end to the original offer and cannot be revived by subsequent acceptance.

An offer will lapse if it has been accepted without fulfilling certain conditions required before accepting. he will be liable to pay as soon as the work on his consideration has begun. Reasonable time depends on the facts and circumstances of the case. Simplest definition is that any kind of act or abstinence. but written and registered. Acts done on request When a person knows the purpose for which he has subscribed and is aware of the consideration. is a sufficient consideration. it is a contract without consideration. 3) A written promise instead of a debt. . 2) If someone voluntarily helps someone or does something and there is a promise to compensate wholly or in part the promisor is legally bound to do so. (English Common Law) This distinction does not exist in the Indian Contract Act. the promisee has. Payment for a subscription has becomes enforceable as soon as steps have been taken in good faith for furtherance of that objective.it as reasonable time for acceptance. is a contract. By death or insanity of the offeror provided it comes to knowledge of the acceptor before he makes his acceptance. which is done or undertaken to be done at the desire of the promisor. is or will do or not do something that doing or not doing is called consideration for the promise. Express or implied consideration is sufficient enough to support a promise. Two situations of Contract formation: Instantaneous and Third party. There is a set of exceptions to this also: 1) Natural love and affection. Section 2(d) & 25 When at the desire of the promisor. An agreement without consideration is a void agreement. 4) Even if the consideration is inadequate but has been made freely I is valid as a contract. which is barred by the limitation act. Instantaneous is ruled by intimation of acceptance whereas incase of third party it is when you put it into transmission.

Forbearance to sue is regarded as valuable consideration. This is applied in cases of fraud.e. 4) A contract cannot be enforces by a stranger even if it is made for his benefit. Consideration & Value & Adequacy Consideration must have value in the law. As far as revocation is concerned no revocation is possible once work on the consideration has begun. Inadequacy will be taken into account only determine whether the consideration made was coerced or freely given. The adequacy of the consideration is for the parties to handle while making the agreement and not a headache of the court. It shall be something that has value in the eyes of the individual as well as the law. 3) Consideration must move from the promisee only and not from anyone else. It is a good form of consideration but must be one. 2) If a person is able to enforce a contract. but the whole object was to grant the plaintiff relief and that had to be carried out. Tweddle v Atkinson: . a contract is a contract between two parties and no one else can sue even if it is made for his benefit. mistake or coercion. Dutton v Poole: .The plaintiff was neither privy to the contract nor interested in the consideration. promisee is not bound to act but if he does act then he can hold the promisor to his promise. it basically means that the plaintiff has certain rights to sue but does not because of a promise of the defendant. It may move from the promisee or if the promisor has no objection then from any other person. This laid the foundation for what is called Privity of Contract i. .No stranger to a consideration can take advantage of a contract although made for his benefit. Privity of Contract The definition of consideration says “promisee or any other person”. he must have given consideration.Unilateral Promise It is a one sided promise. which is made in bona fide and should not be frivolous or misappropriated. Law of England (Fundamental principles) 1) Only a person who is a party to a contract can sue on it. Indian Law (Privity of consideration) Promisee or any other person can furnish a consideration. but is not under seal. As long as there is some value it is for the parties to determine the adequacy.

Indian Law (Privity of Contract) Even though the plaintiff is not a direct party to the contract maybe able to enforce it if it directly benefits him/her. the law of Estoppel cannot be used to invoke that which is invalid under the law: .A minor‟s agreement is devoid of all legal affects. Section 10 All agreements are contracts if they are made by:    Free Consent Lawful Consideration Lawful Object A letter of intent merely indicates a party‟s intention to enter into a contract with other party in the future. If the contract is on behalf of the minor then the minor cannot sue. A statutory contract is one. which is a must. It is a prelude to contract. enforcing of a void contract is not possible under the law iv) Minor Seeking Relief: . but this is not applicable in India. .the infant is not estopped from setting up infancy No liability in contract or in tort arising out of contract: .An infant can be compelled to return property or goods got by fraudulent misrepresentation as long as the same is traceable in his possession. i) No Estoppel against a minor. a contract cannot be converted into a tort to enable someone to sue the infant ii) iii) Doctrine of equitable restitution: .If an infant invokes the aid of court may grant relief subject to condition that benefits obtained are restored or compensation is made. which prescribes a certain set of terms and conditions. Section 11 Every person is competent to make a contract that is of:    Majority age Sound Mind Not disqualified from contracting by any law to which he is subject The general rule that every man is the best judge of his own interests is suspended in case of minors.

Section 13 Two or more persons are said to consent when they agree upon the same thing in the same sense. therefore quasi-contractual in nature.Agreement of a person of unsound mind is like that of the minor. There must always be free and full consent to bind a person in making a contract. a contract that was previously void cannot be ratified. Persons of unsound mind: English Law: . it arises because necessaries have been supplied to him and is. An infant like a lunatic is incapable of making a contract of purchase. Section 14 Free consent is consent without:    Coercion Undue Influence Fraud . but is supplied the necessaries. A person can always make a fresh promise after attaining majority. what is important is that there must be fresh consideration for the promise. A fresh contract has to be made. Nature of liability: One-theory states that liability does not depend on minors consent. This is referred to as „Meeting of minds‟. Section 12 Sound Mind is equal to a person who is Capable of Understanding is equal to one who can make Rational Judgments. Indian Law: . absolutely void. and then the minor has to repay the supplier. Section 68 Claim for necessaries supplied to persons incapable of contracting or on his own account: Basically reimbursed from the property of such incapable person.Ratification: A person cannot on attaining majority ratify agreement made by him during his minority.A person of unsound mind is competent to make a contract but may avoid it if he can prove that at the point of making the contract he was:   Incapable of understanding Other party was aware of this incapability The contract is then voidable at his option.

If undue influence is presumed on the part of the defendant then it is for him to show that the plaintiff had freely consented. Section 16 Sub-Section (ii) mentions „real and apparent‟ authority and „fiduciary relation‟. The burden of proving that the contract was not one made by undue influence is on the person who has the capability to dominate the other.Duress. those in mental distress.Coercion. The burden of proof to show undue influence is on the plaintiff. Consent under pressure is invalid and has no binding value.  Misrepresentation Mistake Section 15 Committing or threatening to commit any act forbidden by the Indian penal Code or the unlawful detaining or threatening. The last categories of persons who can get influenced are those who are in a vulnerable position i. Indian Law: . which is contrary to law. Coercion is defined as committing or threatening to commit some act.May be committed on any person not necessarily a party to the contract English Law: .e. Coercion v/s Duress: . it maybe that he has an unfair advantage over the other party.Coercion involves physical compulsion and an act of violence whereas duress is more of mental conniving and convincing as compared to violence or threat. Exception: Urgent need of money and statutory compulsion do not classify as distress. .Immediate violence and also unnerve a person of ordinary firmness of mind. He has to show not only that the defendant had the ability to dominate but also that he did dominate or use his influence. If a person holds real and apparent authority over another then there might be undue influence or if he makes a contract with someone who is temporarily or permanently affected by reason of age or mental illness. Undue influence and dominion is possible and happens when there is active trust and confidence between parties and there exists an unequal footing. with the intention of causing the person to enter into the agreement Coercion and duress vary in meaning in Indian and English Law. The threat of suicide amounted to coercion within Section 15 as an act forbidden by law and therefore voidable. Section 16 A contract is said to be induced by undue influence when one party can dominate another party.

by one who does not believe it to be true. To make a promise without the intention to perform it classifies as fraud under Section 17 of the Indian Contract Act. It is important for the person to convey that a true representation might become false if there is a change of circumstances. the duty to speak arises when one party reposes trust and confidence in the other. Fraud is not only voidable but is also actionable as a tort. A person complaining of misrepresentation may be met with the defense that he had the “means of discovering the truth with ordinary diligence”. (3) A promise made without any intention of performing it. or with his connivance. In certain cases silence amounts to fraud. (2) The active concealment of a fact by one having knowledge or belief of the fact. or by his agents. with intent to deceive another party thereto his agent. (4) Any other act fitted to deceive (5) Any such act or omission as the law specially declares to be fraudulent. It is false representation made. or to induce him to enter into the contract Fraud means intentional misrepresentation of facts. Silence is fraud in cases where silence is deceptive. of that which is not true. Fraud v Misrepresentation Fraud is more or less an intentional wrong whereas misrepresentation may be quite innocent.Section 17 "Fraud" means and includes any of the following acts committed by a party to a contract. Mere silence is no fraud. . i) ii) iii) Knowingly Without belief in its truth Recklessly careless whether true or false (1) The suggestion as a fact.

it could be fraudulent misrepresentation. (Breach of Duty) Any breach of duty. (Inducing Mistake about Subject Matter) Causing. without an intent to deceive. Section 19 Voidability of agreements without free consent: When consent to a contract is caused by coercion or misrepresentation the agreement is voidable at the option of the party whose consent was caused. gains an advantage to the person committing it. however innocently a party to an agreement to make a mistake as to the substance of a thing. The misrepresentation must be the cause of consent resulting in contract formation. the disadvantaged party may. Cases where misrepresentation arises out of suppression of vital facts amounts to a breach of duty or a case scenario wherein there has been a mistake about subject matter of the agreement. A misrepresentation that is not the cause for consent does not render a contract voidable. in a manner not warranted by the information of the person making it. negligent misrepresentation or innocent misrepresentation. A misrepresentation as to the state of mind of a person is equivalent to misstatement if facts. which is the subject of the agreement. not only avoid the contract but also sue for damages of breach. however innocently. Any change of circumstances that might take place in the reasonable future are to be conveyed to both parties and there must be a meeting of minds. Intention of parties is very important in forming terms of a contract. of duty which. (2) Any breach. a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement. which brings an advantage to the person committing it by misleading the other to his prejudice.Section 18 Misrepresentation means and includes(1) The positive assertion. by misleading another to his prejudice or to the prejudice of any one claiming under him. . Misrepresentation is of various kinds. Misrepresentation should be of facts material to the contract. is a misrepresentation (3) Causing. A fact is said to be material if it would affect the judgment of a reasonable person in deciding whether to enter into a contract and if so on what terms. though he believes it to be true (Unwarranted Statements) When a representation acquires the status of being a term of a contract and it turns out to be untrue. is also misrepresentation. of that which is not true. or any one claiming under him.

(Mutual. A unilateral mistake does not make the contract voidable . in case of mistake on the part of one party it is referred to as a unilateral mistake and is not entitled to any relief in equity. Those which consist in a failure to express correctly in a written document the intention of the parties with respect to a particular transaction There must be meeting of minds while forming a contract. Unilateral. but mistake as to a law not in force in India has the same effect as a mistake of fact. Common mistake will definitely render the whole agreement void if the parties are mistaken about the existence of subject matter. a mutual mistake by both parties either in terms and conditions or intention of the contract Section 20 comes into play:    When both parties to an agreement are mistaken The mistake is to a matter of fact The fact about which they are mistaken is essential to the agreement Section 21 A contract is not voidable because it was caused by a mistake as to any law in force in India. a contract is not voidable merely because one party was under mistake as to matter of fact. There is scope for rectification of a contract without vitiating the whole contract. On Terms or Basis of Contract) Section 20 Agreement void where both parties are under mistake as to matter of fact. The defendant could claim mutual mistake if certain terms or conditions were removed or not intended for by either party. The defendant can raise the plea of mutual mistake. Mistake can be classifies under two heads: i) ii) Those that prevent there being a binding consent to a particular transaction. Section 22 Contract caused by mistake of one party as to matter of fact.Mistake: .

The doctrine of public policy must be applied only where there is clear and incontestable harm to public. a contract is not voidable merely because it is one party being under mistake as to a matter of fact. Any part of. Section 24 Any part of. Acts done or made contrary to public policy are a harmful thing and the doctrine is extended harmful cases but also harmful tendencies. The term public policy means that the courts will on some considerations of public interest refuse to ensure the contract. the vendor also does not have the right to sell and the parties mistakenly believe that he does have the right If the parties have different subject matter in mind then the contract will be void of true consent and there will be no consensus ad ideum and no binding contract Mistake of quality and substance of subject matter can be distinguished from each other Limitations to Mistake Mistake of both parties under section 20 renders a contract void. .Subject Matter is essential to a contract and mistake as to subject matter can take various forms in making the contract void/voidable      If the subject matter had ceased to exist even before the contract has been made. which forms the subject matter of the agreement.a single consideration for one or more objects. Twin benefits are.one of several considerations for one object. the contract in such situations becomes void ab initio If the buyer is already the owner of what the seller purports to him then such a transfer is impossible and comes under mistake as to subject matter No contract would follow where though the buyer is not the owner. is deemed unlawful the contract is void. Unlawful Contracts Section 23 The consideration or agreement is unlawful unless: i) ii) iii) iv) It is forbidden by law Is fraudulent Involves or implies injury to person or property Court regards it opposed to public policy Every agreement of such nature is deemed void. advancement of public good and prevention of public mischief. is not to be deemed as to a matter of fact. An erroneous opinion as to the value of a thing. An agreement is unlawful if the court regards it as opposed to public policy.

the meaning of which is not certain. by the usual legal proceedings in the ordinary tribunals. within specified local limits.Neither party should have control over the happenings of such events. This section shall not render illegal contract. No other interest in the event: . is void. carries on a like business therein. Exception 1: Saving of contract to refer to arbitration dispute that may arise. is to that extent void. or capable of being made certain. provided that such limits appear to the court reasonable. by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract. by which two or more persons agree that any . Mutual Chances of Gain or Loss: . trade or business of any kind. is void to the extent. Section 30 Agreements by way of wager are void and no suit shall be brought regarding wagers. if there are no such mutual chances of win or loss there is no wager. Transactions become wagers during:     Uncertain Events: . or any person deriving title to the goodwill from him.Depends upon the determination of an uncertain event or an event of the past of which the result is not known.No other interest other than the sum they will win or lose. Exception 1: Saving of agreement not to carry on business of which good will is sold .Section 26 Every agreement in restraint of the marriage of any person. are void. so long as the buyer. Contracts in restraint of trade and employment Section 27 Every agreement by which anyone is restrained from exercising a lawful profession. Section 29 Agreements. Neither Party to have control over the event: . or which limits the time within which he may thus enforce his rights.Each party should stand a chance to win or lose. regard being had to the nature of the business. other than a minor.One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business. Contracts in restraint of legal proceedings Section 28 Every agreement.

but a contract may also relate to a previously occasioned event the result of which is unknown to both parties. Ordinarily a contingent contract will contemplate a future event. collateral to such contract. cannot be enforced by law unless and until that event has happened. and that an arbitration agreement may not. if some event. a clause providing for arbitration and declaring that the arbitration clause won‟t apply was held to be void. or affect any provision of any law in force for the time being as to reference to arbitration. The section implies that the contingency contemplated by the contract must be collateral to the contract. which held the arbitration clause severable from rest of the contract. such contracts become void. A contract that is subject to a certain or an absolute type of condition cannot be regarded as a contingent contract. In case of condition subsequent the condition has to be satisfied after the formation of contract. An agreement purporting to oust the jurisdiction of courts is illegal and void on grounds of public policy. Exception 2: Saving of contract to refer question that have already arisen . and that only and amount awarded in such arbitration shall be recoverable in respect of the dispute so referred. An arbitration clause remains binding even where the contract has ended by breach or otherwise. If a valid contract has been set up that is liable to be defeated by a subsequent condition then it will not be a contingent contract.g. by which two or more persons agree to refer to arbitration any question between them which has already arisen. E. Section 31 A "contingent contract" is a contract to do or not to do something. If the event becomes impossible. It is also possible that an arbitration clause might not be valid but he rest of the contract stands. It is therefore theoretically possible that a contract may come to an end. does or does not happen. 1) Contract cannot be enforced unless the event happens 2) If the happening of the event becomes impossible the contract becomes void .dispute which may arise between them in respect of any subject or class of subject shall be referred to arbitration. Contingency as Condition Precedent and Condition Subsequent First the condition has to be satisfied and then the performance can be demanded.Nor shall this section render illegal any contract in writing. was struck down. Section 32-On an event happening Contingent contracts to do or not to do anything in an uncertain future event happens. The part.

which are contingent on happening of a specified event within a fixed time Contingent contracts to do or not to do anything. such event has not happened. And the party making it impossible can be sued. . if. such event becomes impossible. Section 35-When contracts become void. unless a contrary intention appears from the contract.Section 33-On an event not happening Contingent contracts to do or not to do anything if an uncertain future event does not happen. Naturally the parties will have to wait till the happening of that event becomes impossible. are void. or if. may be enforced by law when the time fixed has expired and such event has not happened. or before the time fixed has expired. can be enforced when the happening of that event becomes impossible. Promises bind the representative of the promisor in case of the death of such promisors before performance. unless such performance in dispensed with or excused under the provision of this Act. If the contract is based on the happening of a future event and if that future event is made impossible then the contract hold no valid ground. or otherwise than under further contingencies. if an impossible event happens. becomes void. Section 34 If the future event on which a contract is contingent is the way in which a person will act at an unspecified time. and not before. the event shall be considered to become impossible when such person does anything which renders it impossible that the should so act within any definite time. Section 37-Obligation of parties to contracts The parties to a contract must either perform. or offer to perform. if a specified uncertain event does not happen within a fixed time. if a specified uncertain event happens within a fixed time. which are contingent on specified event not happening within fixed time: Contingent contract to do or not to do anything. or of any other law. if it become certain that such event will not happen. at the expiration of the time fixed. before the time fixed. When contracts may be enforced. Section 36-Agreements contingent on impossible events Contingent agreements to do or not to do anything. whether the impossibility of the event is known or not to the parties to agreement at the time when it is made. their respective promises.

Assignment means transfer of contractual rights or liabilities by a party to the contract to some other person who is not a party. must be made within the time and at the place so fixed. a tender becomes conditional when it is not in accordance with the terms of the contract (2) It must be made at a proper time and place. It is not necessary for the promissory to offer performance to every one of them. the promisee must have a reasonable opportunity of seeing that the thing offered is the thing. if it is done so then there is no further responsibility on the promisor if the tender is not accepted (3) If the offer is an offer to deliver anything to the promisee. Promises bind representatives of the promisors incase of his death. unless a contrary intention appears from the contract. Section 41-Effect of accepting performance from third person . The promisor has the right to insist that the performance shall be the responsibility of the promisee. the tender must be made under such circumstances that the other party gets reasonable opportunity of ascertaining whether the person making the tender is able and willing to fulfill the whole of his obligation under the contract. Section 38-Effect of refusal to accept offer of performance Where a promisor has made an offer of performance to the promisee. In other cases. and under such circumstances that the person to whom it is made may have a reasonable opportunity of ascertaining that the person by whom it is been made is able and willing there and then to do the whole of what he is bound by his promise to do. and the offer has not been accepted. the promisor is not responsible for non-performance. such promise must be performed by the promisor. Section 40-Person by who promise is to be performed If it appears from the nature of the case that it was the intention of the parties to any contract that any promise contain in it should be performed by the promisor himself. Every such offer must fulfill the following conditions (1) It must be unconditional. nor does he thereby lose his rights under the contract. (4) An offer to one of several joint promisees has the same legal consequences as an offer to all of them.Just as the section enables a person to discharge of a contract it also allows for assignment of contract to others. which the promisor is bound by his promise to deliver. the promisor or his representative may employ a competent person to perform it.

If there is something in the contract to show that personal performance was intended. such that one of them cannot be performed. and fails to do such thing at or before a specified time. and where the orders is not expressly fixed by the contract. the contract or so much of it as has not been performed. becomes voidable at the option of the . then the contract will have to be performed by the promisor himself. Section 51-Promisor not bound to perform unless reciprocal promisee ready and willing to perform When a contract consists of reciprocal promises to be simultaneously performed. Section 55. or certain things at or before a specified time and fails to do such thing at or before a specified time.Effect of failure to perform a fixed time in a contract where time is essential When a party to a contract promises to do a certain thing at or before a specified time. or that its performance cannot be claimed till the other has been performed. Section 53-Liability of party preventing event on which contract is to take effect When a contract contains reciprocal promises and one party to the contract prevents the other from performing his promise. such promisor cannot claim the performance of the reciprocal promise. and the promisor of the promise last mentioned fails to perform it.When a promisee accepts performance of the promise from a third person. he cannot afterwards enforce it against the promisor. Section 54-Effect of default as to that promise which should be first performed in contract consisting of reciprocal promises When a contract consists of reciprocal promises. Section 52-Order of performance of reciprocal promises Where the order in which reciprocal promises are to be performed is expressly fixed by the contract. no promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal promise. they shall be performed in that order. the contract becomes voidable at the option of the party so prevented. and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract. and he is entitled to compensation from the other party for any loss which he may sustain in consequence of the non-performance of the contract. they shall be performed in that order which the nature of transaction requires.

A concurrence of all parties is necessary for change of parties 2) A novation involving substitution of new contract in the place of an old contract. the promisee cannot claim compensation of any loss occasioned by the nonperformance of the promise at the time agreed. that is called novation. the contract does not become voidable by the failure to do such thing at or before the specified time. he give notice to the promisor of his intention to do so. some new contract is substituted for it either between the same parties or between different parties. but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure. rescission. and alteration of contractIf the parties to a contract agree to substitute a new contract for it. . In mercantile contracts time is an essence and consideration of time as a factor is important. the promisee accepts performance of such promise at any time other than agree. the original contract need not be performed. In contracts if time has been stipulated it is a condition precedent of a contract.Effect of novation. Novation: . the consideration mutually being the discharge of the old contract”. Section 62.A contract cannot be substituted if there has been a breach of original contract The Supreme Court has laid down that a new contract would have to completely substitute an old contract to the extent that the old contract need not be performed at all. “There being a contract in existence. unless.promisee. Effect of acceptance of performance at time other than agreed upon: If. If time is not a condition precedent then it must be for the parties to show that they intend for it not be essential. Effect of such failure when time is not essential: If it was not the intention of the parties that time should be of the essence of the contract. or to rescind or alter it. in case of a contract voidable on account of the promisor's failure to perform his promise at the time agreed. at the time of acceptance. The substituted contract should be altered or extinguished or rescinded so to exterminate the previous contract. Novation is of two kinds: 1) A novation involving a change of parties.When the parties to a contract agree to substitute the existing contract with a new contract. Section 62 requires an agreement which implies consideration. if the intention of the parties was that time should be of essence of the contract.

or contract that becomes void When an agreement is discovered to be void.Obligation of a person who has received advantage under a void agreement. or may extend the time for such performance. might have known. the performance of the promise made to him. unlawful.Section 63-Promisee may dispense with or remit performance of promise Every promise may dispense with or remit. or when a contract becomes void. „Refer to Assignment on Frustration for details‟ Compensation for loss through non-performance of act known to be impossible or unlawful: Where one person has promised to be something which he knew or. it. The party that has the right to demand the performance of a contract may: 1) Remit or dispense with wholly or in part 2) Extend the time for performance 3) Accept any other satisfaction instead of performance Various cases where this has happened have followed procedure such as: 1) Acceptance of a less sum 2) Waivers. wholly or in part. by reason of some event which the promisor could not prevent.Agreement to do an impossible act An agreement to do an act impossible in itself is void. or to make compensation for it. any person who has received any advantage under such agreement or contract is bound to restore.It is an instance of application of the principle of promissory estoppels 3) Extension of time in accordance with consent from both parties 4) Material alteration in agreement with consent from both parties Section 56. becomes impossible or. Section 65. with reasonable diligence. becomes void when the act becomes impossible or unlawful. Contract to do act afterwards becoming impossible or unlawful: A contract to do an act which. such promisor must make compensation to such promise for any loss which such promisee sustains through the non-performance of the promise. and which the promisee did not know to be impossible or unlawful. or may accept instead of it any satisfaction. . which he thinks fit. after the contract is made. to the person from whom he received it.

his promise in its entirety. silence and inaction are consistent with an affirmation of contract. Effect upon Rights:    Innocent party excused from further performance Immediate right of action Anticipatory breach of a contingent contract.The injunctions have been issued in the case of agreements not to do something Where negative injunction not issued: . if the employee does not accept repudiation then the contract stays alive whether he is permitted to perform his duties or not. Where no other event intervenes to discharge the contract otherwise. Every minor irregularity in performance of a contract cannot be seized upon as a repudiation so as to put a pre-mature end to a contract. the party keeping the contract alive is not absolved from tendering further performance of his own obligation under the contract. the promisee may put an end to the contract. the promisor absolutely repudiates the contract. or by his own act makes it impossible that he should perform his obligations.An anticipatory breach occurs when prior to the promised date of performance. even when the performance of a contract is conditional upon the happening of a contingency an immediate action for damages will lie.Effect of a refusal of a party to perform a promise wholly When a party to a contract has refused to perform. A breach of contract occurs when a party thereto renounces his liability under it. Where negative injunction is issued: . If some event happens other than repudiation which discharges the contract the promisor would also be entitled to take advantage under the changed circumstances. the promisor disables himself from the performance. or disabled himself from performing. The breach is of two kinds: 1) Anticipatory Breach. If aggrieved party does not accept repudiation and leaves the contract alive the consequences will be as follows:     Party repudiating may choose to perform. if before the happening of a contingency.  Acceptance of repudiation has to be clear and unequivocal.Section 39-Discharge by Breach. unless he has signified.The court not to issue a negative injunction to enforce the performance of negative obligations if enforcement would have the effect of compelling the servant to perform positive obligations under the contract. For repudiation the intention of the parties to abandon and refuse performance of a contract needs to clear. his acquiescence in its continuance. Premature termination of contract of employment. the innocent party who kept waiting up to the last day of performance may now sue for breach. by words or conduct. .

It is undoubted law that a plaintiff who sues for damages owes the duty of taking all reasonable steps to mitigate the loss . Such compensation is not to be given for any remote and indirect loss of damage sustained by reason of the breach. Any benefit or advantage that any party received under the contract is to be restored by the defendants. which naturally arose in the usual course of things from such breach. the party who suffers by such breach is entitled to receive. form the party who has broken the contract. but he will be bound under Section 64nto restore benefits he might have received. as if such person had contracted to discharge it and had broken his contract. otherwise the other party would not be justified in putting an end to the contract Aggrieved parties liability to offer restitution The aggrieved party may after putting an end to the contract bring an action for damages for breach. to be likely to result from the breach of it. which existed of remedying the inconvenience caused by non-performance of the contract. any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default. Section 73.Breach in Entirety The party in default must have refused altogether to perform the contract and the refusal must go to the whole contract. the means. Injured party would need to prove quantum of damages as well as damages should have been reasonably foreseeable due to breach of contract and not remote damages. must be taken into account. compensation for any loss or damage caused to him thereby. Compensation for failure to discharge obligation resembling those created by contract: When an obligation resembling those created by contract has been incurred and has not been discharged. It is the burden of proof of the plaintiff and if the burden is not discharged then the claim of damages by the plaintiff is liable to be rejected. when they made the contract.Compensation of loss or damage caused by breach of contract When a contract has been broken. The injured party has to make reasonable efforts to avoid losses resulting from the breach so that his loss is kept to the minimum. or which the parties knew. Explanation: In estimating the loss or damage arising from a breach of contract.

the party complaining of the breach is entitled. Every action of damages raises two problems: 1) Remoteness of damage 2) Measure of damages Consequences of breach may be endless but consequences of liability need to have an end. upon breach of the condition of any such instrument. Damages mean compensation in terms of money loss suffered by the injured party.Arise on account of unusual events happening. as the case may be. In Hadley v Baxendale two basic rules had been laid down: 1) General Damages. Section 74. If the contract breaker is aware of the special circumstances then he is made liable. at all events. recognizance or other instrument of the same nature or. Accordingly what was at that time reasonably foreseeable depends upon the knowledge then possessed by the parties or. Explanation: A stipulation for increased interest from the date of default may be a stipulation by way of penalty. gives any bond for the performance of any public duty or act in which the public are interested. lack of knowledge of special circumstances prevents one from having to pay special damages for it. under the provisions of any law. which is due to his own neglect.Compensation of breach of contract where penalty is stipulated When a contract has been broken. Exception: When any person enters into any bail bond. The burden lies on the injured party to prove and show losses and damage. he shall be liable. But the loss is to be ascertained is the loss at the date of the breach.subsequent upon the breach and cannot claim as damages any sum. Forseeability depends upon knowledge. whether or not actual damage or loss or proved to have been caused thereby. to pay the whole sum mentioned therein. The defendant cannot be held liable for anything and everything that is a consequence of this breach. or if the contract contains any other stipulation by way of penalty.Arise naturally in the usual course of things 2) Special Damages. or under the orders of the Central Government or of any State Government. to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or. if a sum is named in the contract as the amount be paid in case of such breach. . the penalty stipulated for. Relationship between 1 & 2 Only such loss is recoverable as was at the time of the contract reasonably foreseeable as liable to result from the breach. by the party who later commits the breach.

enrichment of one person at the cost of another.the money owed as damages is not a debt.A person who enters into a contract with a government does not necessarily thereby undertake any public duty or promise to do an act in which the public are interested. Section 68.Party rightfully rescinding a contract is entitled compensation A person who rightfully rescinds a contract is entitled to consideration for any damage. Claim for Debt.In ordinary cases damages for mental pain and suffering caused by the breach are not allowed. Quasi Contracts Certain relations resembling those created by contracts are called quasi-contracts. It is not appropriate to award damages for vexation when the contract is a mere commercial one. It resembles a contract in the sense that as it is owed only to one party and not to persons generally. Inconvenience caused by breach Loss caused by misrepresentation Mental pain and suffering and punitive damages. Damages are compensatory not penal. which he has sustained through the no fulfillment of the contract. Damages that have to be recovered have to be evaluated in terms of money. The theory on which quasi-contractual obligations is based is not finally settled. The named sum constitutes the maximum limit of liability. or on his account . it becomes a debt only after the courts award it. One principle is that law as well as justice should try and prevent „unjust enrichment‟ i.Claim for necessaries supplied to person incapable of contracting. The court cannot order damages beyond that.the primary aim or principle of the law of damages for a breach of contract is to place the plaintiff in the same position he would be in if the contract had been fulfilled or the position he would have been at had the breach not occurred. One party cannot be adjudicating authority and decide or assess the damages Injured party must establish breach and right to compensation Section 75. Partly it resembles liability under the law of tort inasmuch as it arises independently of any contract.e.

4) The plaintiff should have made the payment to another person and not to himself. or anyone whom he is legally bound to support. Section 70. . not intending to do so gratuitously. or delivers anything to him. Section 69. It is clear under Section 70 that a if a thing is delivered or done by one person. 3) Either law or contract should bind the defendant in making such payment. 2) It is necessary that the plaintiff should not be bound to pay. and takes them into his custody. Conditions of liability 1) Payer must be interested in making a payment. is supplied by another person with necessaries suited to his condition in life.The plaintiff should be interested in making a payment and such interest which the plaintiff seeks to protect must of course be legally recognizable. He should only be interested in making the payment.Obligation of a person enjoying a non-gratuitous act Where a person lawfully does anything for another person.If a person. Therefore acceptance of a thing delivered or done which is the basis for a claim for compensation under Section 70 must be voluntary. incapable of entering into a contract. the la2tter is bound to make compensation to the former in respect of. Conditions of liability 1) Person should lawfully do something for another person or deliver something to him 2) In doing the said thing or delivering the said contract he must not intend to act gratuitously 3) The person for whom something is done or to whom something is delivered must enjoy the benefit thereof Section 70 deals with cases where a person does a thing for another not intending to act gratuitously nor must it be delivered or done fraudulently or dishonestly. a payment by him of others share would not give a right of recovery under this section. or to restore.Responsibility of finder of goods A person who finds goods belonging to another. is entitled to be reimbursed by the other. and such another person enjoys the benefit thereof.Reimbursement of person paying money due by another. the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person. is subject to the same responsibility as a bailee. Section 71. and who therefore pays it. In cases of joint liability. the thing so done or delivered. in payment of which he is interested A person who is interested in the payment of money which another is bound by law to pay. it must be open to the other person to reject it.

Liability of a person to whom money has been paid. For work done or services rendered pursuant to the terms of the contract compensation quantum meruit cannot be provided where the contract provides for consideration payable in that behalf. by mistake or under coercion. . Compensation quantum meruit is awarded for work done or services rendered when the price thereof is not fixed by a contract. or anything has been delivered.Section 72. must repay or return it A person to whom money has been paid. must repay or return it Quantum Meruit When a party has in the performance of a contract done some work or rendered some service and the further performance has been made useless by the other party. The principle of quantum meruit is rooted in English Law under which there were certain procedural advantages in framing an action for compensation for work done. or anything delivered. by mistake or under coercion. he may recover reasonable compensation for the work or service. The remedy by way of quantum meruit is restitutory. in order to recompense him for the value of work done.

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