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MODULE III

LAW OF CONTRACT

OUTLINE
Capacity

to contract Free consent Performance of contract Discharge of contract Breach of contract

CAPACITY TO CONTRACT (SEC.10)


Who are competent to contract:1. major 2. Of sound mind (i.e. should not be lunatic or insane). 3. Should not be disqualified from contracting by any law.

CONTRACTS BY A MINOR RULES RELATING TO A MINORS CONTRACT


1.

Minors contract is absolutely void (ref ; Mohori bibee v. Dhurmodas


ghose)

2.

No Specific performance of a minor contract: ( exception when


the contract has been entered into by guardian for the benefit of minor on behalf of minor)

3. 4. 5. 6. 7. 8.

No Ratification of minors contract False re-presentation by minor Estoppel Liability of a third person surety for a minor Insolvency of a minor Minors marriage ( valid on the grounds of the custom and
community if entered into their parents or guardian)

Service contracts

EXCEPTIONS TO THE RULE THAT MINORS


CONTRACT IS ABSOLUTELY VOID

Promisee or transferee Minor can be a promisee or a


transferee. Minor is capable of accepting benefits

Agency Minor can act as an agent but not liable to his


principle for his acts

Partnership Minor can be added to the benefits of


partnership by his guardian with consent of other partners. Minor can not personally liable for any obligations of the firm except his share in partnership

Necessaries Minor is Liable to pay out of his property for


necessities supplied to him, or to his minor dependants whom he is legally bound to support.

CONTRACTS BY PERSONS OF UNSOUND MIND


1. 2. 3.

Contracts by lunatics Contracts by drunkard Contracts with parda-nishin women (obliged to observe
complete seclusion under any custom) The court assumes that she is open to undue influence if there is not enough evidence that the deed was explained to and understood by her. E.g. An illiterate harijan woman

4. 5.

Contracts by Married women : competent to contact


independently under Hindu or Mohammedan law

Contracts by corporations:- Corporations Can not enter into a


contracts of strictly personal nature

6.

Contracts by insolvents Is competent to contract only after


he is discharged from his insolvency charges

FREE CONSENT

Agreed upon the same thing in the same sense

Not caused by:---------i) coercion ii) undue influence, iii) fraud iv) misrepresentation v) mistake

Without free consent; contract becomes voidable with the option of the party whose consent was not free except the consent under mistake Contract becomes void if the consent is caused by mistake

COERCION

1. 2.

3.

4.

Coercion is committing or threatening to commit an act forbidden by the Indian Penal Code or the unlawful detaining or threatening to detain any property unlawfully with the intention of causing any person to enter into an agreement. Essential for coercion be established:--There should not only a threat but the act should be punishable under the Indian Penal Code. Coercion may proceed from anybody & it can be directed even against a member of the other contracting party. Coercion includes physical compulsion, fear & even menace to goods. Consent may be caused by unlawfully detaining or threatening to detain any property. The act must have been done or threatened with the intention of causing any person to enter into an agreement.

UNDUE INFLUENCE
A contract is said to be influenced by undue influence where the relations between the parties are such that one of the parties is in a position to dominate the will of the other & uses that position to obtain an unfair advantage over the other. Essentials for undue influence be established:--1. One of the parties is in a position to dominate the will of the other. 2. The dominating party uses that position to obtain unfair advantage over the other.

DISTINCTION BETWEEN COERCION AND UNDUE INFLUENCE


Coercion

Undue influence

The consent is given under committing or threading to commit an act forbidden by the Indian Penal Code or detaining or threatening to detain property unlawfully

The consent is given by a person who is so situated in relation to another that the other person is in a position to dominate his will. Or consent under moral influence Is of Moral character. It is more subtle in nature.

Is of physical character.
It is of violent character.

FRAUD
Fraud means & includes any of the following acts committed by a party to a contract or with his connivance or by his agent, with intent to deceive another party thereto or his agent or to induce him to enter into the contractI. The suggestion which is not true by one who does not believe it to be true. II. The active concealment of a fact by one having knowledge or belief of the fact. III. A promise made without any intention of performing it. IV. Any other act fitted to deceive. V. Any such act or omission as the law specially declares to be fraudulent.

Essential for a fraud to be established


1.

2.

3. 4. 5. 6.

There must be an intention to deceive. The act must be done by a party to a contract or with this connivance or by his agent. The must be a false representation of a fact. There must an active concealment of a fact. There must be a false promise. The party so induced must have acted upon it & suffered loss.

MISREPRESENTATION
Consents given under misrepresentation of facts is no consent at all. A statement made which in fact is not true, under the belief that it is true, is misrepresentation.

MISREPRESENTATION AND FRAUD


Misrepresentation

Fraud

Intension is not to deceive other party. Misstatement or concealment of material facts essential to contract The aggrieved party can rescind the contract or sue for restitution but not for damages The aggrieved party can not avoid the contract if it had means to discover the truth with ordinary diligence.

Intension is to deceive the other party. Aggrieved party can sue for damages also

As the concealment is willful the contract is voidable even if the aggrieved party had means to discover the truth with ordinary diligence

MISTAKE: an erroneous belief of something is called mistake


Mistake of fact

Mistake of law

of the country

Of foreign country

Bilateral mistake

unilateral mistake

Mistake as to subject matter regarding

Mistake as to Possibility of performance

Physical impossibility

legal impossibility

existence

identity

quality

quantity

title

price

MISTAKE LEGAL IMPLICATIONS

Mistake of law of the country can not be avoided i.e. ignorance of law is no excuse Mistake of law of foreign country is treated as mistake of fact and thus it is void. Bilateral mistake( mistake of both the parties), the agreement is void Unilateral mistake does not make contract voidable. It is not allowed as a defense is avoiding contract, except exceptions, where the agreement is void.

PERFORMANCE OF CONTRACTS

1.

2.

3.

The following persons should perform the promise:--In case of a personal contract- by the promisor personally. In case of non-personal contract- by the promisor personally or by the third person on behalf of the promisor or in the event of the death of promisor by his legal representative. In case of joint promisors- by the promisors jointly or third person on behalf of the promisors or their legal representatives.

PERFORMANCE OF CONTRACTS
Situations 1.) Non-personal contracts
A promises to deliver goods to B on certain day for Rs.1000/If A dies before that day then As representatives are required to deliver the goods and B is bound to pay Rs.1000/-

2.) Personal contracts


A promises to paint a picture for B by certain day for a certain price. On the death of A before that day the contract is not enforceable by his representatives

JOINT RIGHTS AND JOINT LIABILITIES

Jointly liable during their lives, representatives liable after death of any or both the parties Promisees right when two or more persons make a joint promise, the promisee may compel any one or more of such joint promisors to perform the whole promise. E.g. A, B and C jointly promises to pay D Rs. 3000/- then D may either compel any one from A,B or C to pay Rs.3000/Equal contribution In the above case if C pays 3000/- to D then he can claim 1000 from each of the other party Default in contribution- if any one of two or more joint promisors make default in such joint contribution, the remaining joint promisors must bear the loss arising from such default in equal shares. Release of the joint promisor

TIME AND PLACE FOR PERFORMANCE


When

there is no time specified Reasonable time is taken under consideration time is specified On certain day during the usual office hours.

Where

EFFECT OF FAILURE TO PERFORM AT A FIXED TIME

When time is essential


When parties have mentioned the essentiality of time in contract Where delay operates as an injury When the nature and necessity of the contract requires effective timings Legal implication the contract becomes voidable

When time is not essential


Fixation of the period within which the contract has to be performed does not make the time as essence of the contract E.g. Normally it is assumed that sale of immovable property contracts does not fall into time essential contracts Legal implication The contract is not voidable but the aggrieved party can claim for compensation for the losses due to contract not happening in time

DISCHARGE OF CONTRACT
By

performance By death Refusal to acceptance By breach of contract (when a party refuses to perform his part of contract on the actual due date of performance) Anticipatory breach of contract (when a party refuses to perform or communicates his inability to perform his part of contract before the actual due date of performance)

Consequences of anticipatory breach


One may elect to withdraw the contract and immediately sue for the damages One may treat the contract as still alive and wait for the time of performance date and then hold the other party responsible for all the consequences of non-performance

By impossibility of performance (supervening impossibility)


Destruction of the object necessary for the performance Change of law Outbreak of war

(Difficulties of performance, commercial impossibility, strikes and lockouts, civil disturbances, default or failure of third person on whose word promisor relied etc. are not covered under supervening impossibility)

By agreement or by consent
By novation ( substitute a new contract) By accord and satisfaction E.g.- A owes B Rs.1000/- B agrees to accept Rs.750/- in full satisfaction. The agreement to pay Rs.750 is accord and the actual payment is satisfaction) By remission or wavier ( Both the parties mutually agree to waive the contract)

By operation of law

By insolvency or bankruptcy ( The insolvent is discharged and the rights and liabilities are transferred to an official assignee under the Presidency Towns Insolvency act) By merger (merger of superior right into inferior right) e.g. an ordinary debt merged into a mortgage.

By unauthorized material alteration of the contract


E.g. alteration with document of title to goods

Discharge by laps of time


e.g. If the creditor does not file a suit to recover his debt amount from the debtor within a period of limitation as laid down under the limitations act i.e. 3 years for money suit, then the contract is discharged

CONSEQUENCES AND REMEDIES FOR


BREACH OF CONTRACT
Remedies available to aggrieved party

Suit for specific performance Suit for injunction (order given by judicial authority)

Suit for damages for the losses sustained (The injured party is placed in the same financial position as he would have been in, if the contract had been performed and then damages are calculated)

TYPES OF DAMAGES UNDER QUANTUM MERUIT (AS MUCH AS HE HAS DESERVED)

Compensatory damages ( The actual damages what a plaintiff


has lost as a result of a defendant's wrongful conduct)

Nominal damages (which consist of a small sum awarded to a


plaintiff who has suffered no substantial loss or injury)

Exemplary damages (which are awarded not to compensate a


plaintiff for injury suffered but to penalize a defendant for wrongful conduct) e.g. Banker refusing to honour the cheque of his client having sufficient balance

Special damages (Can be recovered only if stipulated in contract)