2010 11 pgp1-lab_written report_section b_group 13_18_nov2010
DESCRIPTION
LEGAL ASPECTS OF BUSINESSTRANSCRIPT
Group 13Narendra Reddy Yaddula
Sachin RaneSoumen Sarkar
Suman Surendranath Murmu Rohan Mishra
Classification of Contracts & Remediesfor Breach of Contract
Classification According to Validity
Valid ContractAn Agreement that is enforceable at lawCompliance with essential elements in Indian
Contract LawVoid Contract
A contract which ceases to be enforceable by lawA valid contract becomes void due to impossibility
or illegalityA contract cannot be void right from the time of
its formation – void ab initioVoidable Contract
A contract, which can be put to an end at the options of some of the parties to the contract
If the parties opt not to avoid the contract, it is as good as a valid contract
Voidable Contracts Contd..A contract becomes voidable
When the consent of one or more parties (aggrieved parties) is obtained through coercion, fraud or undue influence
When a contract contains reciprocal promises and one party prevents the other from performing promise
When a party fails to perform a contract in the specified time
Status of a voidable contractWhen a party at whose option a contract is voidable decides
not avoid the contract, the contract is as good as validWhen the party decides to avoid such contract
The contract comes to an endThe aggrieved party can claim compensation, if anyThe aggrieved party is liable to restore any benefits received under
the contract
Classification According to Formation
Express ContractTerms of contract expressly agreed upon at the time
of formation of contractExpress Promise - Offer or acceptance made in wordsExpress promise results in an express contract
Implied ContractInferred from the acts or conduct of the parties or
course of dealings between themMay results from continuing course of conduct of the
partiesImplied Promise - Proposal or Acceptance made with
means other than wordsQuasi-Contract
Created by lawLegal obligation imposed on a party to perform itRests on the ground of equity that “a person shall
not be allowed to enrich himself unjustly at the expense of others”
Classification according to performance
Executed ContractA contract where all parties to the contract have
performed their obligations under the contractExecutory Contract
A contract where all parties to the contract have not yet performed their respective obligations under the contract
Bilateral ContractA contract where both the parties in the contract
are bound when the contract is madeObligations of both parties are outstanding
Unilateral ContractA contract where only one party has to fulfill his
obligation at the time of formation of the contract
Breach of Contracts
Breach of contract occurs whenAny party to the contract fails to perform his
part of the contractAny party to the contract makes it impossible for
the other party to perform his obligation under the contract
Breach of contract may occur in two ways –Anticipatory Breach of Contract
A party declares his intention of not performing the contract before the performance is due
Actual Breach of ContractOn Due Date of PerformanceDuring the Course of Performance
Rescission of the Contract
In case of breach of contract by one party, the other party may rescind the contract
The aggrieved party may sit quietly or take legal action
Filing a suit for rescission of the contract necessary if the aggrieved party intends to sue the guilty party for damages
What are Damages
Damages are monetary compensation allowed to the injured party for the loss suffered by him as a result of the breach of contract.
It is compensation, not punishmentTries to put the injured party into the
position in which he would have been had there been performance and not breach.
Different Kinds of DamagesOrdinary damagesSpecial damagesExemplary damagesNominal damages
Ordinary damagesAKA General or CompensatoryThe injured party can always recover
ordinary damages from the guilty“direct or proximate consequences”
of the breach of contract“remote or indirect losses” are not
consideredExamples
Hadley vs. BaxendaleInability to repay debt on timeInability to supply goods
Sale and PurchaseDamages is the difference between the
contract price and market priceElse, market price of nearest substituteElse, price at point of purchase + conveyance
charges + normal profitIn case of instalments market price on the day
of the instalments are consideredExamples
Contract price of rice=Rs 500; Market price=Rs 550; No: of bags decided = 5
Damages = (550-500) * 5 = Rs 250Contract price of bike = Rs 60,000; Actual market
price received = Rs 52,000Damages = 60000-52000 = Rs 8000
Special DamagesCovers remote losses, which are not naturalCannot be claimed as a matter of rightCan only be claimed if the circumstances were
brought to the notice of the other party at the time of entering the contract
ExampleContract price (between A and B) for 1 ton iron = Rs 800
Contract price (between B and C) for 1 ton iron = Rs 1000Market price = Rs 900Total tons = 100Damages = (1000-800) * 100 = Rs 20000
Contract between ‘A’ and ‘B’ to build a house to rent it to ‘C’If house is not built as per agreement then Damages = cost of rebuilding incurred by ‘A’ + rent lost
by ‘A’ + any compensation paid to ‘C’
Exemplary or Vindictive DamagesAwarded as punishmentNot as a compensationThese damages can be claimed only in 2
casesBreach of contract to marry
Depends on the extent of injury of feelings, loss of reputation, marriage prospects
Dishonour of a cheque by a banker when there are sufficient funds to the credit of the customerSmaller the cheque, greater the damagesDepends on status of the party
Nominal DamagesNeither compensation nor punishmentUpholds the rights and obligationsAwarded when the injured party has not
suffered any real damageAmounts may be just Rs. 1 or 2Example
When market price and contract price are equal
Duty To Mitigate Damage SufferedIt is a duty of injured party to mitigate damage
suffered because of breach of contact by the other party
Injured party can not recover any part of damage, which happened because of his negligence to mitigation
Can be proved by the defendant that the plaintiff has failed in his duty of mitigation The plaintiff is free from the burden of proving that
he tried to mitigate the loss
Illustrations a) A servant is dismissed, even though wrongfully, it
is his duty to mitigate the damages by seeking another job.
He can recover only nominal damages if refuses another job
In case he tries to mitigate the damage, then he will be entitled to full salary for the whole period of service as per the contract
b) A took a shop on rent from B and paid one month’s rent in advance but B couldn’t give possession of the shop to A. A chose not to do any business for next 8 months and sued B for breach of contract.
He will be entitled only to a refund of his advance because he had failed in his duty to mitigate the damage
Liquidated Damages And PenaltyLiquidity Damages
A sum fixed up in the advance, which is a fair and genuine pre-estimate of the probable loss
PenaltyA sum fixed up in advance, which is extravagant and
unconscionable in amount with the greatest loss that could be happened because of breach of contract
According to the Act, the Courts are not bound to treat the sum mentioned in contract as the sum payable for damages
And the mentioned sum is the maximum limit of liability in case of breach
If according to the contract Rs. 1000 is fine for delaying the supply then, the compensation amount claimed can not exceed Rs. 1000
Cost Of Suit
The aggrieved party is entitled to get the cost of suit, i.e the cost of getting the decree for damages done by the defaulter party
This amount is other than the compensation for damages
The cost of suit for damages is decided by the Court
Summary Of The Rules Regarding The Measure Of DamagesDamages awarded to the aggrieved party is the
compensation for the loss and not for the punishment of guilty party
The injured party is to be placed in the same position, with the help of money, as if the contract had been performed
The aggrieved party can recover when the loss arising naturally in the usual course of things after breaching
Special or Remote damages are usually not allowed until they are in the knowledge of both the parties at the time of entering into the contract
Summary Of The Rules (contd.)
The injured party can recover the damages
irrespective of the difficulties to assess them
Nominal damages are awarded in case of no real loss
The Court will allow only reasonable compensation to
cover the actual loss even in case of ‘Liquidated
Damages and Penalty’
Exemplary damages can not be awarded except for Breach of a contract to marry
Dishonour of a cheque by a banker even if there are sufficient
funds
Duty of injured party to minimise the damage suffered
The injured party is entitled to get the cost of suit
Suit upon Quantum MeruitQuantum Meruit: “as much as is earned”
or “in proportion to the work done”Usual causes are violation of contractual
terms by a party after part performance, or the contract is discovered void
Aggrieved party may file suit and claim payment in proportion to work done or goods supplied
Quantum Meruit due to default of defendant
The contract has been discharged due to default of defendant Example (a) P agreed to write a volume on ancient armour to be
published in a magazine owned by C. For this, P was to receive 100 pounds on completion. When P had completed part of the work, but not the whole, C abandoned the magazine. P was held entitled to get damages for breach of contract and payment quantum meruit for the part already completed (Planche vs Colburn).
Example (b) A, engages B, a contractor, to build a three storied house. After a part of the house is constructed, A prevents B from working any more. B, the contractor, is entitled to get reasonable compensation for work done under the doctrine of quantum meruit in addition to the damages for breach of contract.
The claim is in addition to that for damages for breach of contract
Quantum Meruit due to contract being void
(a) C was appointed as managing director of a company by the board of directors under a written contract, which provided for his remuneration. The contract was found void because the directors who constituted the ‘Board’ were not qualified to make the appointment. C, nevertheless, purporting to act under the agreement, rendered services to the company and sued for the sums specified in the agreement, or, alternatively, for a reasonable remuneration on a quantum meruit. Held, C could recover on a quantum meruit. (Craven‐Ellis vs Canons Ltd. ).
(b) A contracts with B to repair B’s house at a piece rate. After a part of the repairs were carried out, the house is destroyed by lightning. Although the contract becomes void and stands discharged because of destruction of the house, A can claim payment for the work done on ‘quantum meruit’.
Quantum Meruit : Non gratuitous act leading to benefit
When goods/services or both are provided without intention of gratuity
And the benefits of these are enjoyed by another party (a) A, a trader, leaves certain goods at B’s house by
mistake. B treats the goods as his own. He is bound to pay A for them.
(b) Where A ploughed the field of B with a tractor to the satisfaction of B in B’s presence, it was held that A was entitled to payment as the work was not intended to be gratuitous and the other party has enjoyed the benefit of the same. (Ram Krishna vs Rangoobed).
Quantum Meruit : Claim by guilty party
A party guilty of breach of contract can also sue on a quantum meruit provided:The contract is divisibleThe other party must have enjoyed the benefit
of the part, which has been performed, although he had an option of declining it.
Example:Where a common carrier fails to take a complete
consignment to the agreed destination, he may recover pro‐rata freight. (He will, of course, be liable for breach of the contract.)
Suit for Specific PerformanceSpecific performance: the actual carrying out of the
contract as agreed.Aggrieved party may file a suit, resulting in court
directing the defendant to actually perform the promise
Such a suit may be in addition to or instead of a suit for damages
<missing points>Specific performance not granted in following:
Where monetary compensation is adequateWhere it is not possible for the court to supervise
execution of the contractWhere the contract is for personal services (in such
cases “injunction” is granted instead of specific performance)
Suit for Injunction
Injunction: Order of the court restraining a person from doing a particular act
Mode of securing specific performance of negative terms of contract (a party can be in breach of negative terms of contract) (a) A, agreed to sing at B’s theatre for three months
from 1st April and to sing for no one else during that period. Subsequently she contracted to sing at C’s theatre and refused to sing at B’s theatre. On a suit by B, the court refused to order specific performance of her positive engagement to sing at the plaintiff’s theatre, but granted an injunction restraining A from singing elsewhere and awarded damages to B to compensate him for the loss caused by A’s refusal. (Lumley vs Wagnerl)
Another Illustration of Suit for Injunction
(b) G agreed to take the whole of his supply of electricity from a certain company. The agreement was held to import a negative promise that he would take none from elsewhere. He was, therefore, restrained by an injunction from buying electricity from any other company. (Metropolitan Electric Supply Company vs Ginder).
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