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Presented by :Gagandeep Singh Sabharwal
Topics to be covered
Legality of Object y Performance and Discharge of contract y Breach of Contract and remedies
Legality of object
The object or consideration of an agreement must be lawful , in order to make the agreement a valid contract , for , Section 10 lays down that all agreements are contracts if made for lawful consideration and with a lawful object. Section 23 declares what kinds of considerations and objects are not lawful. If the object or consideration is unlawful f r one or the other of the reasons mentioned in section 23, the agreement is ´ illegal µ and therefore void ( Section 23). The use of the word ´illegalµ is somewhat misnomering here. It usually connotes a punishable offence , but the parties to a so called ´illegal agreementµ unless it is expressly punishable by law or amounts to a criminal conspiracy , are not liable to punishment.They have committed no offence.They have merely concluded a transaction that will be spurned by the courts. The words ¶object· and ¶consideration· used in Section 23 are not synonymous. The word ¶object· here means ¶purpose or design·.Thus , where a person , while in insolvent circumstances , transferred his property to one of his creditors with the object of defrauding his other creditors , it was held that the agreement was void and the transfer was inoperative.The court observed that although the consideration of the contract was lawful but the object was unlawful because the purpose of the parties was to defeat the provisions of the Insolvency Law
If it is fraudlent. Furtherance of sexual immorality . Hindu and Mohammedan Laws ). is unlawful and hence void. This clause refers to cases where the object or consideration of an agreement is of such a nature that. every agreement of which the object or consideration is unlawful is void . If it involves or implies injury to the person or property of another. though not directly forbidden by law .. or When it is prohibited by special legislation or regulations made by a competent authority under powers derived from the legislature. The scope of the word ¶ immoral ¶ here extends to the following : Sexual immorality e. it would defeat the provisions of any law. An agreement whose object or consideration is to defraud others. If it is of such a nature that.What What Considerations and Objects are Unlawful ? According to section 23. Such acts which are against good public morals. If the court regards it as immoral. An agreement whose object or consideration is immoral . y y y y y y y y y y y . Such an agreement is also void. and the consideration or the object of an agreement is unlawful in the following cases : y If it is forbidden by law. whether enacted or otherwise ( e. it would indirectly lend to a violation of law . If the object or consideration of an agreement is injury to the person or property of another . illicit cohabitation or concubinage or prostitution . is illegal and therefore void. being an unlawful agreement.g. If the consideration or object for a promise is such as is forbidden by law.g. This clause refers to agreements which are declared illegal by law. it is void. the agreement is void.. if permitted. Interference with marital relations. An act or an undertaking is forbidden by law: When it is punishable by the criminal law of the country .
if enforced . Such agreements are therefore illegal. Traffic in public offices. ¶Champerty· is an agreement whereby a person agrees to assist another in litigation in exchange of a promise to hand over a portion of the proceeds of the action.. An agreement the object of which is to interfere with the course of justice . Agreements interfering with the court of justice. So the courts are generally disinclined to invent new heads of public policy. the doctrine of public policy is generally governed by precedents. It has been described as an ¶untrustworthy guide· .e. Agreements for sale or transfer of public offices or for appointments to public offices in consideration of money are illegal. Public policy is an illusive concept. Public policy is that principle of law which holds that no citizen can lawfully do that which is injurious to the public or is against the interests of the society or the State. he must be punished . both are very much similar in nature because what is ¶immoral· must be ¶opposed to public policy· and reverse is also true in most cases. It is well settled law that if a person has committed a crime . An agreement is unlawful if the court regards it as ¶opposed to public policy·. an agreement which tends to promote corruption or injustice or immorality is said to be opposed to public policy. It is not possible to give a precise or exact definition of the term ¶public policy·. Agreements for stifling criminal prosecution.µ Maintenance and Champerty. ¶Maintenance· may be defined as an agreement whereby a stranger promises to help another person by money or otherwise in litigation in which that third person has himself no legal interest. an agreement not to disclose misconduct to the other interested party or an agreement to influence a judge to induce him to decide the case in a party·s favour.g. But an agreement to refer present or future disputes o arbitration is a valid agreement. being opposed to public policy.y If the court regards it as ¶opposed to public policy·.. would lead to inefficiency and corruption in public life. is obviously opposed to public policy and is void. etc. Such agreements . a citizen of the other country at war with the State) is against public policy in so far as it tends to aid the economy of the enemy country. Broadly speaking. It is now fully established that trading with an alien enemy ( i. y y y y y . It is to be noted that an agreement to promote hostile action in a friendly state is also illegal and void as being opposed to public policy. On the basis of decided cases on the subject the following agreements have been held to be against public policy: Trading with an alien enemy. It is interesting to note that ¶opposed to public policy· and ¶immoral· . hence any agreement which seeks to prevent the prosecution of a guilty party is opposed to public policy and is void. e. It is rather an elastic term and its connotation may vary with the social structure of the state. for ´ no one can be allowed to make a trade of a felony . and therefore . unless made with the special permission of Government. ¶unruly horse· ..
A father . Agreements unduly restraining personal liberty. such an agreement shall be void on the ground of public policy. y y y y y . the right of guardianship is bartered away by any agreement which is inconsistent with the duties arising out of such custody . Miscellaneous cases. The authority of a guardian with good public morals. Agreements interfering with parental duties. These are agreements for the payment of money in consideration of procuring for another in marriage a husband or a wife. is the legal guardian of his/her minor child. and in his absence the mother . The following agreements have also been held against public policy: Agreements ´tending to create monopoliesµ are illegal and void. therefore. An agreement which tends to create a conflict between interest and duty is illegal and void on the ground that it is opposed to public policy. Such agreements are illegal and void being contrary to public policy. If . Agreements which unduly restrict personal freedom have been held to be void and illegal as being against public policy . the agreement was held invalid and the money could not be recovered. when a ¶Prohit· was promised Rs 200 in consideration of procuring a wife for the defendant . Thus.y Agreements creating an interest opposed to duty. Marriage brokerage agreements.
an agreement by which an employee was to get . Agreements whereby money is given to induce persons to give evidences in a civil court are void because every one is expected to perform his legal duty.y Agreements to defraud revenue authorities are void and illegal.µ. an expense allowance grossly in excess of the expenses of the expenses actually incurred by him . So. for . y . For ex . in addition to salary. ´ no polluted hand shall touch the pure fountain of justice. was held illegal because the provision as to expenses was contrary to public policy being merely a device to defraud the income tax authorities. Effect of Illegal Agreements on collateral Transactions y y As we all know that the Illegal agreements are not enforceable as between the immediate parties. Parties to an illegal agreement cannot get any help from a court of law . But an ¶illegal agreement· has this further effect that other transactions which are incidental or collateral to it are also tainted with illegality and therefore are not enforceable provided the parties to the collateral transaction had the knowledge of the illegal or immoral design of the main or primary agreement. No restitution is allowed. nothing can be recovered under an illegal agreement and if something has been paid it cannot be recovered back . whether the illegal object has been carried out or has been not carried is immaterial.
he cannot afterwards enforce it against the promisor. In case of a contract of impersonal nature like contract of sale of goods or a contract to lend a sum of money. By a third party. When a contract is duly performed by both the parties . Thus . y . In case of the death of the promisor before performance . Who can demand Performance? It is only the promisee who can demand performance of the promise under a contract. taste or credit like to paint a picture. By an agent. By whom Contracts must be Performed? y y y By the promisor himself. general rule is that ¶µa person cannot acquire rights under a contract to which he is not a partyµ. But in case of personal skills this cant be fulfilled. his legal representatives are entitled to enforce the performance of contract against the promisor. the contract comes to an happy ending and nothing more remains. for. In case of a contract involving personal skills . unless a contrary intention appears from the contract.Performance of Contracts Performance of contract means fulfilling of their perspective of their respective legal obligation created under the contract by both the promisor and the promisee. By the legal representatives. when a promisee accepted lesser amount from a third party in full satisfaction of his claim . the liability of performance falls on his legal representatives. it was held that he cannot enforce the promise against the promisor. Section 41 lays down that if a promisee accepts a performance of the promise from a third person . In case of the death of the promisee.
A buys goods from B and pays in return a price for the goods. In these cases there is an obligation on each party to perform his own promises and to accept performance of other·s promise. For ex..Order of performance of reciprocal promises Promises which form the consideration of each other are called as reciprocal contracts or mutual promises. .
Where not prescribed : then it should be done within a reasonable period of time and at a proper place. For ex . .Time and place for performance Where prescribed by the promisee: Then it must be done at the specified time and place. in case of land purchasing time is not a constraint as their market price does not fluctuate rapidly but in case of gold and buying shares time is very important due to market fluctautions. the parties need to fulfill the contract within a period of time like delivery of goods etc and these things need to be clarified at the time of entering into the contract and judge that the intention of the parties are time depedent or not. If these contracts are not completed within the above conditions then the either party can sue the promising party for the breach of contract. Also a special case when time is the essence of the contract . When there is no time mentioned in the contract then it does not become void and the other party will have to accept the delayed performance and also he cannot claim for a compensation later on for the delayed performance.
When both principal and interest due. By law.According to the circumstances the intention is to be decided By the creditor. If there is no instruction and the implied intentions then creditor has the option to apply the payment to any debt due to him.Appropriation of payments Section 59 and 61 of the Contract Act these rules must be followed (a) Debtors instructions to be followed . When a debtor has several debts to the same creditor then his instructions should be followed His implied intention must be followed.followed by principal. If the debts are of same value then the payment recd. (b) (c) (d) (e) . In this case firstly interest shall be applied«. Should be applied proportionately else it should be based on time.
If any promisee neglects or refuses to afford the reasonable facilities for the performance of his promise . . If parties to a contract agree to dispense with or remit performance of promise then the original contract stands discharged. When a person at whose option a contract is voidable rescinds it the other party thereto need not to perform his promise. rescission then the original contract need not be performed due to its substitution. the promisor is excused for the non ² performance of the contract.Contracts which need not be performed If parties agree to a alteration .
y .Performance and Breach y If a contractual duty has not been discharged or excused. Breach of contract ² If a contracting party fails to perform an absolute duty owed under a contract. the contracting party owes an absolute duty (covenant) to perform the duty.
Types of Performance Complete Performance Substantial Performance Inferior Performance .
Summary:Types of Performance Type of Performance Legal Consequence Complete Performance The contract is discharged. Substantial Performance (minor breach) Inferior Performance (material breach) The non-breaching party may recover damages caused nonby the breach. . The non-breaching party may either: non(1) Rescind the contract and recover restitution. or (2) Affirm the contract and recover damages.
.Anticipatory Breach A breach that occurs when one contracting party informs the other that he or she will not perform his or her contractual duties when due.
Monetary damages are available whether the breach was minor or material. y Copyright © 2004 by PrenticeHall. .Monetary Damages y A non-breaching party may recover monetary damages from a breaching party.All rights reserved.
Types of Monetary Damages Compensatory Damages Consequential Damages Nominal Damages Liquidated Damages Copyright © 2004 by PrenticeHall.All rights reserved. .
y They place the non-breaching party in the same position as if the contract had been fully performed by restoring the ´benefit of the bargain.All rights reserved.µ y Copyright © 2004 by PrenticeHall.Compensatory Damages Award of money intended to compensate a non-breaching party for the loss of the bargain. .
y Special types of contracts: Sale of Goods Construction Contracts Employment contracts y Copyright © 2004 by PrenticeHall.All rights reserved. and Which party breached the contract. .Compensatory Damages (continued) The amount of that will be awarded for breach of contract depends on: The type of contract involved.
Copyright © 2004 by PrenticeHall. y To be liable for these damages.Consequential Damages y Foreseeable damages that arise from circumstances outside the contract. . The breaching party must know or have reason to know that the breach will cause special damages to the other party.All rights reserved.
and The liquidated amount must be reasonable in the circumstances. .All rights reserved.Liquidated Damages Damages to which parties to a contract agree in advance if the contract is breached. y To be lawful. y Copyright © 2004 by PrenticeHall. The actual damages must be difficult or impracticable to determine.
Copyright © 2004 by PrenticeHall. and Provide an incentive to enter into contracts. which help to: Provide certainty. .Liquidated Damages (continued) y Many businesses include liquidated damages in their commercial contracts. Avoid lawsuits.All rights reserved.
.µ y Copyright © 2004 by PrenticeHall.All rights reserved. y Cases involving nominal damages are usually brought on ´principle. y Usually awarded in a small amount such as $1.Nominal Damages Damages awarded when the non-breaching party sues the breaching party even though no financial loss has resulted from the breach.
Mitigation of Damages y A non-breaching party is under a legal duty to avoid or reduce damages caused by a breach of contract. The extent of mitigation depends on the type contract involved. y Copyright © 2004 by PrenticeHall. .All rights reserved.
the court may issue: Writ of Attachment Writ of Garnishment Copyright © 2004 by PrenticeHall.All rights reserved. .Enforcement of Remedies y If the breaching party refuses to pay the court ordered judgment.
or other property of the breaching party that is in the hands of third parties be paid over to the non-breaching party to satisfy the judgment. and To sell the property at auction to satisfy the judgment.Enforcement of Remedies (continued) Writ of Attachment y Orders the sheriff to Seize property in the possession of the breaching party that he or she owns. . y Writ of Garnishment Orders that Wages. Copyright © 2004 by PrenticeHall.All rights reserved. bank accounts.
y If the actual goods or property is not available. .All rights reserved. y Available if there has been: A material breach of contract Fraud Undue influence Mistake Restitution y Returning of goods or property received from the other party to rescind a contract.Rescission and Restitution Rescission y An action to undo the contract. Copyright © 2004 by PrenticeHall. a cash equivalent must be made.
They are also available to prevent unjust enrichment.All rights reserved. y Copyright © 2004 by PrenticeHall. .Equitable Remedies y Equitable remedies are available if there has been a breach of contract that cannot be adequately compensated by a legal remedy.
All rights reserved.Types of Equitable Remedies (1 of 2) Type of Equitable Remedy Description Specific Performance Court orders the breaching party to perform the acts promised in the contract. Reformation Copyright © 2004 by Prentice-Hall. Court rewrites a contract to express the parties¶ true intentions. The subject matter of the contract must be unique. Usually used to correct clerical errors. .
Types of Equitable Remedies (2 of 2) Type of Equitable Remedy Description Quasi Contract Permits the recovery of damages for breach of an implied-in-law contract where no actual implied-incontract exists between the parties. Only the reasonable value of the services or materials may be recovered. . Injunction Copyright © 2004 by Prentice-Hall. Available in contract actions only in limited circumstances.All rights reserved. Court order that prohibits a party from doing a certain act.
All rights reserved. Third-party knowledge of this contract. enforceable contract between the contracting parties. Third-party inducement to breach the contract.Intentional Interference with Contractual Relations A tort that arises when a third party induces a contracting party to breach the contract with another party. y Copyright © 2004 by PrenticeHall. . y The following elements must be shown: A valid.
and They are also required to act in good faith and deal fairly in all respects in obtaining the contract.All rights reserved. . y Copyright © 2004 by PrenticeHall. y A breach of this implied covenant is a tort for which tort damages are recoverable.Breach of the Implied Covenant of Good Faith and Fair Dealing Under this covenant: The parties to a contract are held to the express terms of the contract.
All rights reserved.Punitive Damages Damages that are awarded to: Punish the defendant Deter the defendant from similar conduct in the future Set an example for others y Generally. y Copyright © 2004 by PrenticeHall. . punitive damages are not recoverable for breach of contract.
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