ASSIGNMENT 1

(LEGAL ASPECTS OF BUSINESS)

PINKU KUMAR 1827649

Long Questions:

1. What do you mean by the term Breach of Contract? Explain

various remedies available for breach of contract?
Ans- Breach of contract is a legal cause of action and a type of civil
wrong, in which a binding agreement or bargained-for exchange is not
honored by one or more of the parties to the contract by non-
performance or interference with the other party's performance.
Breach occurs when a party to a contract fails to fulfill its obligation(s),
whether partially or wholly, as described in the contract, or
communicates an intent to fail the obligation or otherwise appears not
to be able to perform its obligation under the contract. Where there is
breach of contract, the resulting damages will have to be paid by the
party breaching the contract to the aggrieved party.

If a contract is rescinded, parties are legally allowed to undo the work

unless doing so would directly charge the other party at that exact
time. It is important to bear in mind that contract law is not the same
from country to country. Each country has its own independent, free
standing law of contract. Therefore, it makes sense to examine the laws
of the country to which the contract is governed before deciding how
the law of contract (of that country) applies to any particular
contractual relationship.
* Remedies for breach of contract-
A. Recession of Contract - When one of the parties to a
contract does not fulfil his obligations, then the other party can
rescind the contract and refuse the performance of his
obligations.
As per section 65 of the Indian Contract Act, the party that
rescinds the contract must restore any benefits he got under
the said agreement. And section 75 states that the party that
rescinds the contract is entitled to receive damages and/or
compensation for such a recession.
B. Sue for Damages - Section 73 clearly states that the party
who has suffered, since the other party has broken promises,
can claim compensation for loss or damages caused to them in
the normal course of business. Such damages will not be
payable if the loss is abnormal in nature, i.e. not in the ordinary
course of business. There are two types of damages according
to the Act.
C. Sue for Specific Performance - This means the party in breach will
actually have to carry out his duties according to the contract. In certain
cases, the courts may insist that the party carry out the agreement. So
if any of the parties fails to perform the contract, the court may order
them to do so. This is a decree of specific performance and is granted
instead of damages.
D. Injunction - An injunction is basically like a decree for specific
performance but for a negative contract. An injunction is a court order
restraining a person from doing a particular act. So a court may grant
an injunction to stop a party of a contract from doing something he
promised not to do. In a prohibitory injunction, the court stops the
commission of an act and in a mandatory injunction, it will stop the
continuance of an act that is unlawful.

E. Quantum Meruit - Quantum meruit literally translates to “as much

is earned”. At times when one party of the contract is prevented from
finishing his performance of the contract by the other party, he can
claim quantum meruit.

he must be paid a reasonable remuneration for the part of the contract

he has already performed. This could be the remuneration of the
services he has provided or the value of the work he has already done.

2. Define Contract of Agency. How can an agency be

created?
Ans - Agency can be defined as the relationship between two
persons, wherein a person has the authority to act on behalf of
another, bind him/her into a legal relationship with the third
party. There are two parties in a contract of agency – principal
and agent.
Contract of Agency is based on the fact that one person cannot
perform all the transactions and so he can appoint another
perform or act on his behalf.

Agency can be created - The agency can be created in

the following ways:
A. Express Agency: - One can enter into the contract of
agency through an express agreement, i.e. oral or
written. In a written contract of agency, the power of
attorney is transferred in the name of the agent,
conferring him the authority and power to act on behalf
of the principal, subject to the terms and conditions
specified in the contract.
When the purpose of creation of agency is to transfer the
immovable property, it is required to be registered,
B.Implied Agency:- When something is not directly or
clearly stated, it is said to be implied. Therefore, the
implied agency is created by way of conduct, the
situation of the parties, i.e. principal and agent, or
necessity of the case.
• Agency by Estoppel:- Suppose a person by his conduct
informs another person that a particular person is his
agent and the person who is signified as an agent is
present and hearing at the time when it is intimated.
Now, if the third person enters into a contract with that
person thinking that he is the agent. This is the case of
agency by estoppel, where the agent will be precluded
from refusing his authority.
• Wife as an agent: - When a legally married couple lives
together, the wife is supposed to have the authority of
his husband to pledge his credit, in order to afford the
basic necessities of life, according to their standard of
living. However, it has certain exceptions, if the husband
proves that:
* He has explicitly warned the dealer not to give the
goods on credit to his wife, or
* He has explicitly forbidden his spouse to pledge his
credit, or
* He has already supplied the mentioned stuff in
sufficient quantity to his wife or
* He is providing sufficient allowance to his wife.
• Agency of Necessity: - There may be certain
circumstances that compel the parties to enter into a
contract of agency. Suppose a person is entrusted with
property or goods of another person, he is obligated to
take reasonable care of it as well as to incur necessary
expenses so as to preserve and protect such property.
• Agency by Ratification: - Agency can also be created
by ensuing ratification. When a person who does not
have any authority claims to act as an agent or a legally
employed agent performs an act which is beyond his
authority, then the principal is not legally bound by the
contract entered into on his behalf. However, he may
ratify the act performed by the agent and accept the
liability. This results in an agency by ratification.
In such a case, the parties i.e. the principal and agent will
be in the same position if the acts were performed with
authority.In a contract of agency, the agent has to
establish Privity of Contract, amidst the principal and the
third party. Here Privity of Contract means that no right
is conferred or obligations are imposed on any person
who is not a party to the contract.
This means that the party to contract are entitled to sue
each other to enforce the rights or claim damages, but
prevents others from doing so.

Short Questions:--

1. Void Contract vs. Voidable Contract

Void Contract:-
° In a void contract no obligation or right arises or
accrues to parties to the contract from a void
contract. Such contracts are not covered by law.
° A void contract can give rise to no legal liability
since transaction is nullity.
° A void contract cannot confer any right.
° The contract becomes void when it ceases to be
enforceable.
° A void contract cannot be made valid by parties to
the contract by their consent.
Voidable Contract :-
° A voidable contract continues at the option of
one party; it is the desire of one party either to
rescind it or continue; it is enforceable at the option
of one party and is covered by law.
° A voidable contract remains valid until
rescinded.
° A voidable contract confers enforceable right
till is not essential.
° A contract becomes voidable only when
consent to agreement is obtained by coercion,
undue influence fraud or misrepresentation.
° A voidable contract can be made valid by the
party who has a right to rescind it by giving up
his right 0f rescinding it.
2Q. INDEMNITY VS. GUARANTEE
Contract of Indemnity:-
° It refers to a Contract by which one party
promises to save the other from loss caused by
conduct of the promisor or another person.
° In contract of indemnity, the liability of the
promisor is primary.
° Contract between the indemnifier and the
indemnity holder is express and specific.
° In contract of indemnity there are two parties
indemnifier and the indemnity holder.
° In Contract of indemnity there is only one
agreement i.e. the agreement between
indemnifier and indemnity holder.
° Contract of indemnity protects the promise
from loss.
° In Contract if indemnity, the promisor cannot
file the suit against third person until and
unless the promisee relinquishes his right in
favour of the promisor.
Contract of Guarantee :-
° It refers to a Contract to perform the
promise or discharge the liability of a third
person in case of his default.
° In contract of guarantee, the primary
liability is of principal debtor and the
liability of surety is secondary.
° Contract between surety and principal
debtor is implied and between creditor and
principal debtor is express.
° In contract of guarantee there are three
parties i.e. creditor, the principal debtor
and surety.
° In contract of guarantee there are three
agreements i.e. agreement between the
creditor and principal debtor, the creditor
and surety and surety and principal debtor.
° Contract of guarantee is for the surety of
the creditor.
° In contract of guarantee, the surety does
not require any relinquishment for filing of
suit. The surety gets the right to file suit
against the principal debtor as and when
the surety pays the debt.