BL-Unit 1

Ms.
Shruti Bhuttani
11/28/2013
BUSINESS LAW
UNIT 1
Shruti Bhuttani
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Ms.Shruti Bhuttani
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WHAT IS CONTRACT?
According to section 2(h) An agreement enforceable by law is a contract. Contract essentially consist of two elements: a) Agreement b) Legal Obligation
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COMMENT ON THE GIVEN BELOW STATEMENT:
All contracts are agreement but all Agreements are not contract
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CLASSIFICATION OF CONTRACTS
1.
On the basis of validity or enforceability: Valid Contract : An Agreement enforceable by law and satisfy al essential elements of valid contract. Voidable Contract :An agreement enforceable by law at the option of one or more party only but not at the option of the other or others party in a voidable contract. Void Contract: It implies a contract which was legally enforceable when entered into but it has become void due to the supervening impossibility of its performance.
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Void agreement : A contract which has no existence in the eyes of law can not be enforceable in court of law. for eg- an agreement with a minor. A void agreements never becomes a contract. Unenforceable contract : It is a contract which is otherwise valid, but cannot be enforceable because of some technical defect like absence of a written form or absence of a proper stamp.
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2. On the basis of its formation: Expressed contract: A contract which has been entered into with words either spoken or written. Implied contract: A contract which has been entered by its actions or expressions otherwise than in words. In such a contract law implies that the former agrees to pay for the price. Quasi contract or constructive contract: under such a contract rights and obligation between the parties arises not only by any agreement but by operation of law.
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3 . On the basis of performance: Executed contract: is the one in which both the parties have performed their obligations. Executory contract : where a contract is yet to be performed either wholly or partially by one or both the parties.
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ESSENTIAL ELEMENTS OF CONTRACT

1) Offer And Acceptance : There must be lawful offer and Lawful acceptance for the same. 2) Intention To create Legal Relation: There must be intention among both the parties to create a legal obligation. Contract of social or domestic nature are generally presumed not to carry any legal obligation. CASE: BALFOUR V/S BALFOUR
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3) Lawful Consideration: Consideration is the price paid by one party for the promise of other. The consideration is unlawful under following conditions: a) If it is forbidden by law:

Any act punishable by criminal law. Any Act Probhited by special legislation or regulation.
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b) If permitted it would defeat the provision of any law. c) If act is only fraudulent: d) If court regard its immoral.
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4) Capacity of Parties: Following persons are incompetent to enter into contract: a) Minor b) Unsound Mind: Various Types of Unsoundness of mind is:

Idiocy: It is god given and permanent with no interval of saneness. Lunacy :It is disease of brain .Lunatic loses the thinking power of his brain due to some strain or disease. Drunkenness: Hypnotism: Mental Decay: This is on account of old age.
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C) Disqualified Person: Following persons are disqualified to enter into contract:
Alien Enemies: Foreign Sovereign and ambassador. Convict Married Women
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5) Free Consent: Section 14 lays there is a absence of free consent under following conditions: a) Coercion: is threatening to convict any act. b) Under Influence: Such a contract where relation existing between the parties is such that one dominate the will of other. Eg: relationship between master and servant.
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c) Misrepresentation: A representation means a statement of fact made by one party to the other, either before or at the time of contract. A representation when wrongly made ,either innocently or intentionally is termed as a misrepresentation. Eg: A says to B who intends to purchase his land my land produces 10 quintals of wheat per acre A, believes the statement to be true, although he doesnt not sufficient grounds for the belief .Later on ,it transpires that the land produces only 7 quintals of wheat per acre. This is misrepresentation.
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d) Fraud: It includes all acts committed by a person with an intention to deceive another person. For Eg: A sells a horse to B which he knows is of unsound mind but unsoundness is during intervals. so he sold the horse during the time when horse was of sound mind. He hided the fact to make B enter into the agrreement.later when B realized he can file a case of fraud against A and can claim damage caused for the same.
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FRAUD V/S MISREPRESENTATION FRAUD

Implies on intention to deceive, hence it is intentional or willful wrong.
Misrepresentation
Is an innocent wrong without any intention to deceive. The person making the statement believes it to be true. A civil wrong which entitles Gives only the right to a party to claim damages rescind the contract in addition to the right to and there can be no rescind the contract. suit for damages.
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6) Lawful Object : The object for which agreement has been entered into it must not be fraudulent or illegal or immoral or imply injury to the person than such a agreement cannot be treated as a valid contract. For eg.: A rents out his house for the business of prostitution or for making bomb, the acts performing there are unlawful. Hence such agreement cannot be treated as a valid contract.
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7) Writing and Registration :The contract act does not insist that the agreement must be in writing, it could be oral. But, in some cases the law strictly insist that the agreement must be in writing like agreement to sell immovable property must be in writing and should be registered under the Transfer of Property Act, 1882. These agreement are valid only when they fulfill the formalities like writing, registration, signing by both the parties are completed.
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8) Agreement not expressly declared void: Section 24 to 30 specify certain types of agreement which have been expressly declared void. For eg- If John promises to pay $50 to Mary if she does not marry throughout her life and Mary promise not to marry at all. But this agreement cannot be treated as a valid contract owing to the fact that, under sec 26 restraint of marriage expressly declared void. agreement in restraint of trade (Sec 27)
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9)Certainty of meaning: Wording of the agreement must be clear and not uncertain or vague. Suppose John agrees to sell 500 tones of oil to Mathew. But, what kind of oil is not mentioned clearly. So on the ground of uncertainty, this agreement stands void.
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10) Possibility of performance: As per section 56, if the act is impossible of performance, physically or legally, the agreement cannot be enforced by law. Impossible agreements like one claims to run at a speed of 1000km/hour or Jump to a height of 100feet etc. would not create a valid agreement
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1)
Discharge by Performance: There are two types of performance: Actual Performance Attempted Performance
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2) Discharge By Mutual consent :Can be done under the following ways: Novation: when a new contract is substituted for a existing contact ,either between the Same parties or between different parties, the consideration mutually being discharged for old contract. Alteration: means change in one or more material terms of the contract.
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Rescission: A contract may be discharged ,before the date of performance by agreement between the parties to the effect that is shall no longer bind them . Remission: means acceptance of a lesser fulfillment of the promise made. Waiver: When the parties to a contract agree that they shall no longer be bound by the contract. Consideration is not necessary for waiver.
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3) Discharge by impossibility: a) Impossibility Existing at time of agreement b) Impossibility arising subsequent to the formation of contract known as SUPERVENING IMPOSSIBILTY Discharge in case of supervening impossibly: Destruction of Subject Matter: When the subject matter of a contract, subsequent to its formation, is destroyed without any fault of the parties to the contract, the contract is discharged.
Non Existence or Non Occurrence of a particular state of things: Sometimes contract is entered between two parties on the basis of a continued existence or occurrence of a particular state of things and if that state of thing does not occur, the contract is discharged. Death or Incapacity for personal experience: Where the performance of contract depends on the personal skills of a party, the contract stands to be discharged on his death or illness as incapacity to perform.
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Change of law : When subsequent to the formation of contract, change of law takes place under such a situation contract stands to be discharged. Outbreak of War: A contract entered into with an alien enemy before the war stands to be discharged during a period of war.
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Difficulty of Performance : Commercial Impossibility: When in a transaction profits dwindle to a very low ,therefore it becomes commercial impossible. Impossible due to the default of third person strikes and lockouts Failure of one of the object.
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4) Discharge by lapse of time: The limitation act1963 lays down that a contract should be performed within a specific period, called period of limitation. 5) Discharge by operation of Law: Death: In contracts involving personal skill or ability ,the contract is terminated on death of the promisor. In other contracts, the right and liabilities of a deceased person pass on to the legal representatives of the deceased person.
Merger : Where an inferior right contract merges into a superior right contract, the former stands discharged. Unauthorized Material Alteration: A material alteration made in written document or contract by one party without the consent of the other will make the whole contract void.
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6) Discharge by breach of contract:

Anticipatory Breach : Breach of contract arising
before the time fixed for performance has arrived. Actual breach: It occurs when a party fails to perform his obligation upon the date fixed for the performance.
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REMEDIES FOR BREACH

A contract, stands to be discharged when it is performed resulting contracting party got free from its obligations. But in case contracting party fails to perform the contract than there is breach of contract.
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REMEDIES FOR BREACH

The party committing breach of contract is called the guilt party and the other party is called the injured or aggrieved party
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The remedies are:

against the guilty party:
Following remedies are available to aggrieved party
1. 2. 3. 4. 5.
Suit for rescission, Suit for damages, Suit for quantum meruit, Suit for specific performance, Suit for injunction.
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1).
Suit for Rescission
The breach of contract no doubt discharges the contract, but the aggrieved party may sometimes need to approach the court to grant him a formal rescission, i.e. cancellation, of the contract. This will enable him to be free from his own obligations under the contract.
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2. Suit for Damages

The word damages means monetary compensation for loss suffered. Whenever a breach of contract takes place, the remedy of damages is the one that comes to mind immediately as the consequence of breach.
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A breach of contract may put the aggrieved party to some disadvantage or inconvenience or may cause a loss to him. The court would desire the guilty part to accept responsibility for any such loss of the aggrieved party and compensate him adequately. The quantum of damages is determined by the magnitude of loss caused by breach
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Types of Damages (Sec.73)

When the aggrieved party claims damages as a consequence of breach, the court takes into account the provisions of law in this regard and the circumstances attached to the contract. The amount of damages would depend upon the type of loss caused to the aggrieved party by the breach.
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The court would first identify the losses caused and then assess their monetary value. Sec.73 of the Act lays down the basic guidelines for identifying the losses.
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(a)
General or ordinary damages:
Such losses would be called the general or ordinary losses which can be seen as arising naturally and directly out of the breach in the usual course of the things. They would be the unavoidable and logical consequence of the breach. The damages for such losses are called general or ordinary damages. An aggrieved partys right to damages applies most naturally for the direct or general losses. There can be no damages for indirect and remote losses
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(b)
Special damages:
Special damages would be the compensation for the special losses caused to the aggrieved party by the special circumstances attached to the contract. At the time of making the contract, a part may place before the other party some information about the special circumstances affecting him and tell him that if the contract is not performed properly, he would suffer some particular types of losses because of those special circumstances. If the other party still proceeds to make the contract, it would imply that he has agreed to be responsible for the special losses that may be caused by an improper performance of his obligation. Compensation for such special losses is called special damages
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The two types of losses that have been put under two separate points above, the ordinary losses and the special losses, are in reality based on one common idea only. And that idea is that the level of knowledge of circumstances at the time of making the contract would determine what losses shall be compensated by the guilty party.
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Exemplary or vindictive damages: Sometimes, the courts

(c)
award damages for mental or emotional suffering also caused by the breach. Such damages are called exemplary or vindictive damages. These may be taken as an exception to the general principle that damages are awarded only for the financial loss caused by breach of contract.
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the court stated that in three cases mental suffering and pain of the aggrieved party can also be taken into account: (i) Unjustified dishonour of a cheque, (ii) Breach of promise of marriage, and (iii) Failure of vendor of real estate to make title.
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(d)
Nominal damages:
If the breach of contract
causes no loss to the aggrieved party, no damages need be awarded to him. However, in order to record the fact of breach by guilty party, the courts may award nominal or token damages, e.g. a compensation of Rs.10. They would be called nominal damages.
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Rules Regarding Award of Damages

(i) Compensation not penalty:
The fundamental purpose of awarding damages is to compensate the aggrieved party for any loss suffered and not to punish the guilty party for causing breach.
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(ii) Limited damages: The aim of the

courts, in awarding damages, would be to place the aggrieved party, as far as money can do it, in the same position in which he would have been, had the contract been properly performed.
(iii) Damages for attributable losses:
Damages are awarded for the losses which can be attributed to the breach.
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(iv) Mitigation of losses:
The aggrieved party is expected to make sincere efforts to minimize the losses that are resulting out of breach of contract.
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(v) Stipulation for liquidated damages or penalty: Sometime, the parties to contract may themselves stipulate an amount in the contract to be payable by the guilty party to the aggrieved party as damages for breach of contract. This stipulation of the amount may be by way of liquidated damages or by way of penalty.
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(vi) Cost of suit:
The breach of contract by a party forces the other to initiate legal action against the guilty party. This necessarily entails expenditure. This cost of suit can be recovered from the guilty party only at the discretion of the court.
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Suit for quantum meruit
The term quantum meruit means as much as earned. It implies a payment deserved by a person for the reason of actual work done.
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Suit for quantum meruit

When a party has done some work under a contract, and the other party repudiates the contract or somehow the full performance of the contract becomes impossible, then the party who has done the work can claim remuneration for the work under a suit for quantum meruit.
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Suit for specific performance

In certain cases of breach of a contract, damages may not be an adequate remedy. Then the Court may direct the party in breach to carry out his promise according to the terms of the contract. This is a direction by the Court for specific performance of the contract at the suit of the party not in breach. But in general, Courts do not wish to compel a party to do that which he has already refused to do.
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Suit for injunction

It means order of court restraining a person from doing something. The injunction can be granted where the contract is of negative character i.e. where the party has promised not to do something but he does it thereby he makes breach of contract. CASE: Metropolitian Electric Supply Company VS Ginder.
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Shruti Minocha
Ms.Shruti Bhuttani
INDEMNITY AND GUARANTEE

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INDEMNITY
The contract of indemnity is a CONTRACT where one part promises to save the other from loss caused to him by the conduct of promisor himself or by conduct of any other person, is called as contract of indemnity. The person who promises to make good the loss is known as INDEMNIFIER(Promisor) The person to whom promise is made or whose loss is to be made good is know as Indemnified or Indemnity Holder (Promisee)
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RIGHTS OF INDEMNITY HOLDER WHEN SUED

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He is entitled to recover all damages which he may be compelled to pay in respect of suit to which the promise to indemnify applies. He is entitled to recover all costs reasonably incurred ,in bringing or defending such suit, provided he acted prudently or with the authority of promisor ( Indemnifier). He is also entitled to recover all sums which he may have paid under the terms of any compromise of any such suit, provided the compromise was authorized by promisor ( Indemnifier).
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CONTRACT OF GUARANTEE
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A contract of Guarantee is contract to perform the promise ,or discharge the liability ,of a third person in case of his default. The person who gives the guarantee is know as Surety. The person in whose default guarantee is given is known as Principal Debtor. The person to whom guarantee is given is known as Principal Creditor. A Guarantee may be either oral or written.
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DISTINCTION BETWEEN CONTRACT OF INDEMNITY AND GUARANTEE

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INDEMNITY
There are two parties to contract
GUARANTEE
There are three parties to contract
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There is only one contract

It is for reimbursement of loss
There are three contracts

It is for security of debt
The Primary liability can be on indemnifier himself.
The liability of surety is secondary it arises only on default at part of principal 61 debtor.
INDEMNITY
The liability of indemnifier arises only on happening of certain thing In future. There is no existing debt .
GUARANTEE
This is usually an existing debt or duty, the performance of which is guaranteed by surety.
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An indemnifier cannot A surety can approach sue the third part for the principal debtor in his own rights after he has loss in his name.
discharge the debts owing to principal creditor.
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INDEMNITY
In this Indemnifier acts independently without any request of the debtor or the third party.
GUARANTEE
The person must stand as surety for the principal debtor at the request of a debtor only.
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KINDS OF GUARANTEE
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Specific Guarantee : Is given in respect of a single debt or specific transaction. It comes to an end as soon as the liability under the transaction ends.
Continuing Guarantee : Guarantee which extends to a series of transactions. It is intended to cover a number of transactions over a period of time. For eg: A guarantees to C for Bs purchase from C for six months to the extent of Rs.5,000/. This is a continuing Guarantee.
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BL-Unit 1

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Ms.

COMMENT ON THE GIVEN BELOW STATEMENT:

ESSENTIAL ELEMENTS OF CONTRACT

ESSENTIAL ELEMENTS OF CONTRACT

ESSENTIAL ELEMENTS OF CONTRACT

ESSENTIAL ELEMENTS OF CONTRACT

ESSENTIAL ELEMENTS OF CONTRACT

ESSENTIAL ELEMENTS OF CONTRACT

ESSENTIAL ELEMENTS OF CONTRACT

ESSENTIAL ELEMENTS OF CONTRACT

FRAUD V/S MISREPRESENTATION FRAUD

ESSENTIAL ELEMENTS OF CONTRACT

ESSENTIAL ELEMENTS OF CONTRACT

ESSENTIAL ELEMENTS OF CONTRACT

ESSENTIAL ELEMENTS OF CONTRACT

ESSENTIAL ELEMENTS OF CONTRACT

6) Discharge by breach of contract:

REMEDIES FOR BREACH

REMEDIES FOR BREACH

The remedies are:

Following remedies are available to aggrieved party

Suit for Rescission

2. Suit for Damages

Types of Damages (Sec.73)

General or ordinary damages:

Exemplary or vindictive damages: Sometimes, the courts

If the breach of contract

Rules Regarding Award of Damages

(ii) Limited damages: The aim of the

(iii) Damages for attributable losses:

(iv) Mitigation of losses:

(vi) Cost of suit:

Suit for quantum meruit

Suit for quantum meruit

Suit for specific performance

Suit for injunction

INDEMNITY AND GUARANTEE

RIGHTS OF INDEMNITY HOLDER WHEN SUED

DISTINCTION BETWEEN CONTRACT OF INDEMNITY AND GUARANTEE

There is only one contract

There are three contracts

The Primary liability can be on indemnifier himself.

DISTINCTION BETWEEN CONTRACT OF INDEMNITY AND GUARANTEE

DISTINCTION BETWEEN CONTRACT OF INDEMNITY AND GUARANTEE

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