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UNIT II INDIAN CONTRACT ACT, 1872

Introduction to contract law

A contract is an agreement made between two or moreparties which the law will enforce

Acc. to sec 2(h) a contract is an agreement enforceableby law

Contract=Agreement + Enforceability

Agreement=promise + return promise +consideration

Agreement = Proposal or offer + acceptance

Nature of law of contract

Law of Contract creates jus in personam not jus inrem

Consensus ad idem

• Offer & Acceptance•Intention to create legal relationship•Lawful consideration•Capacity of parties—competency•Free & genuine consent•Lawful object•Agreement not declared void•Certainty & possibility of performance•Legal formalities

• According to sec. 10, all agreements are contracts if theyare made by the free consent of parties competent tocontract, for a lawful consideration and with a lawfulobject and are not expressly declared to be void

• Classification according to validity• Classification according to formation• Classification according to performance

• Classification according to validity :-

•Voidable contract•Void agreement and void contract• Illegal agreement• Valid contract•Unenforceable contract

• Classification according to formation :-

•Express contract• Implied contract• Quasi contract

• Classification according to performance :-

• Executed contract• Executory contract• Unilateral or one-sided contract• Bilateral contract

An offer is a proposal by one party to anotherto enter into a legally binding agreement withhim

An offer/proposal is defined as “when oneperson signifies to another his willingness to door to abstain from doing anything, with a view toobtaining the assent of that other to such act orabstinence, he is said to make a proposal”. (Sec.2(a))

An offer may be made by express words,spoken or written – Express offer

An offer may also be implied

When an offer is made to a definite person itis specific offer

When an offer is made to the world at large, itis general offer

Legal rules as to offer :- Offer must be such as in law is capable ofbeing accepted and which gives rise to legalrelationship Terms of offer must be definite ,unambiguous and certainAn offer may be distinguished from a declaration of intention & anannouncement an invitation to make an offer or dobusiness

Legal rules as to offer :- Offer must be communicated Offer must be made with a view to obtainthe assent Offer should not contain a term the noncompliance of which may be assumed toamount to acceptanceA statement of price is not an offer

Cross offer - Concept

Manifestation by the offeree of his willingnessto be bound by the terms of the offer

When the offeree signifies his assent to theofferor, the offer is said to be accepted

Acceptance may be express or implied

Legal rules as to acceptance :- It must be absolute and unqualified It must be communicated to the offeror It must be according to the modeprescribed or usual and reasonable mode It must be given within a reasonable time It cannot precede an offer It must show an intention on the part of theacceptor to fulfill terms of the promise

Legal rules as to acceptance :- It must be given by the party or parties towhom the offer is madeIt must be given before the offer lapses orbefore the offer is withdrawn It cannot be implied from silence

Agreement to agree in future is not acontract

• When a party to an agreement promises to dosomething, he must get something in return. Thissomething is defined as consideration

• Consideration is the price for which thepromise of the other is bought, and the promisethus given for value is enforceable

• Sec. 2(d) defines consideration as follows“When at the desire of the promisor , thepromisee or any other person has done orabstained from doing, or does or abstains fromdoing, or promises to do or to abstain fromdoing, something, such act or abstinence orpromise is called a consideration for thepromise”.

• Legal rules as to consideration :

• It must move at the desire of the promisor• It may move from the promisee or any otherperson• It may be an act, abstinence or forbearance or areturn promise• It may be past, present or future• It need not be adequate

• Legal rules as to consideration :

•It must be real and not illusory• It must be something which the promisor is notalready bound to do• It must not be illegal, immoral or opposed topublic policy

• Only parties to a contract can sue and be suedon that contract• This rule is known as doctrine of “privity ofcontract”• “Privity of contract means relationshipsubsisting between the parties who have enteredinto contractual obligations”.

• Consequences of doctrine of “Privity of contract”• A person who is not a party to a contractcannot sue upon it even though the contract isfor his benefit or he provided consideration

• A contract cannot give rights or imposeobligations arising under it on any person otherthan the parties to it.

• A CONTRACT WITHOUT CONSIDERATION IS VOID (EXCEPTIONS)

• Love and affection• Compensation for voluntary services• Promise to pay a time barred debt• Completed gift• Agency• Charitable subscription

• Capacity means competence of the parties to enterinto a valid contract

• Acc to Sec. 10 an agreement becomes a contract ifit is entered into between the parties who arecompetent to contract

•Acc. to Sec. 11, every person is competent tocontract who

• is the age of majority acc to the law to whichhe is subject•is of sound mind•is not disqualified from contracting by any lawto which he is subject.

•MINORS•An agreement with or by a minor is void andinoperative ab initio• He can be a promisee or a beneficiary• His agreement cannot be ratified by him onattaining the age of majority• If he has received any benefit under a voidagreement, he cannot be asked to compensateand pay for it• He can always plead minority

•MINORS•There can be no specific performance of theagreements entered into by him as they arevoid ab initio•He cannot enter into a contract of partnership• He cannot be adjusted insolvent• He is liable for necessaries supplied ornecessary services rendered to him

•MINORS

•He can be an agent• His parents/guardians are not liable for thecontract entered into by him•A minor is liable in tort

•Minor’s liability for necessaries:•It includes

• Necessary goods• Services rendered

• Persons of Unsound Mind (Sec. 12)• “ A person is said to be of sound mind forthe purpose of making a contract if, at thetime when he makes it , he is capable ofunderstanding it and of forming a rationaljudgment as to is effect upon his interests.”

• A person who is usually of unsound mindbut occasionally of sound mind, may make acontract when he is of sound mind

• Persons of Unsound Mind (Sec. 12)• A person who is usually of sound mind, butoccasionally of unsound mind, may not makea contract when he is of unsound mind

• Contracts of persons of unsound mind

• Lunatics [suffers from intermittent periodsof sanity and insanity]• Idiots [suffers from permanent insanity]• Drunken or intoxicated persons [temperoryincapacity to contract]

•Persons disqualified from contracting:

• Alien enemies• Foreign sovereigns , their diplomatic staffand accredited representatives of foreignstates• Corporations• Insolvents• Convicts

• “Two or more persons are said to consent whenthey agree upon the same thing in the samesense” (Sec. 13)

• Consent is said to be free when it is not causedby

• Coercion (Sec. 15)• Undue influence (Sec. 16)• Fraud (Sec. 17)• Misrepresentation (Sec. 18)• Mistake (Sec. 20,21,22)

FLAW IN CONSENT

COERCION UNDUE INFLUENCE

MISREPRESENTATION

FRAUDULENT OR INTENTIONAL

INNOCENT OR UNINTENTIONAL

MISTAKE

MISTAKE

MISTAKE OF LAW

OF THE COUNTR

Y

OF THE FOREIGN COUNTR

Y

MISTAKE OF FACT

BILATERAL

MISTAKE AS TO THE SUBJECT

MATTER REGARDING

EXISTENCE IDENTITY QUALITY QUANTITY TITLE PRICE

MISTAKE AS TO THE POSSIBILITY OF PERFORMING THE CONTRACT

UNILATERAL

EXCEPTIONS

MISTAKE AS TO THE

PERSON CONTRACTE

D WITH

MISTAKE AS TO THE NATURE OF THE CONTRACT

• COERCION

• Consent is said to be caused by coercion whenit is obtained by :

• Committing or threatening to commit anyact forbidden by the Indian Penal Code, 1860• Unlawful detaining or threatening to detainany property

• COERCION

• Effects :• When consent to an agreement is caused bycoercion, fraud or misrepresentation, theagreement is a contract voidable at the optionof the party whose consent was so caused

• Acc to Sec. 72, a person to whom money hasbeen paid, or anything delivered by mistake orunder coercion, must repay or return it

• UNDUE INFLUENCE

• “ A contract is said to be induced by ‘undueinfluence’ where the relations subsisting betweenthe parties are such that one of the parties is in aposition to dominate the will of the other anduses that position to obtain an unfair advantageover the other”. Sec 16(1)

• UNDUE INFLUENCE

• A person is deemed to be in a position todominate the will of another

• where he holds a real or apparent authorityover the other• where he stands in a fiduciary relation to theother• where he makes a contract with a personwhose mental capacity is temporarily orpermanently affected by reason of age, illnessor stress

• UNDUE INFLUENCE

• Effects :

• When consent to an agreement is caused byundue influence, the agreement is a contractvoidable at the option of the party whoseconsent was so caused

• MISREPRESENTATION

• A statement of fact which one party makes inthe course of negotiations with a view toinducing the other party to enter into a contract isknown as a representation.

• A representation, when wrongly made, eitherinnocently or intentionally, is amisrepresentation.


• Misrepresentation may be :• an innocent or unintentionalmisrepresentation, or• an intentional, deliberate or wilfulmisrepresentation with an intent to deceive ordefraud the other party


• (Sec. 18)----There is misrepresentation• when a person positively asserts that a fact is truewhen his information does not warrant it to be so,though he believes it to be true• when there is any breach of duty by a person whichbrings an advantage to the person committing it• when a party causes, however innocently, the otherparty to the agreement to make a mistake as to thesubstance of the thing which is the subject of theagreement


• Requirements• It must be a representation of a material fact• It must be made before the conclusion of thecontract• It must be made with an intention that it should beacted upon by the person to whom it is addressed• It must actually have been acted upon and musthave induced the contract• It must be wrong but the person who made ithonestly believed it to be true


• Requirements• It must be made without any intention todeceive the other party• It need not be made directly to the plaintiff


• Consequences• The aggrieved party, in case ofmisrepresentation by the other party can -----

• avoid or rescind the contract• accept the contract but insist that he shall

be placed in the position in which hewould have been if the representationmade had been true


• Consequences• Loss of right of rescission

• if the aggrieved party, after becomingaware of the misrepresentation takes abenefit under a contract

• if restoration to the original position ofthe parties is not possible

• if a third party has acquired rights in thesubject matter of the contract in goodfaith and for value

• FRAUD

• Acc to Sec. 17 “fraud means and includes any ofthe following acts committed by a party to acontract, or by his agent with intent to deceive or toinduce a person to enter into a contract

• the suggestion that a fact is true when it is nottrue and the person making a suggestion doesnot believe it to be true• the active concealment of a fact by a personhaving knowledge

•FRAUD

• a promise made without any intention ofperforming it• any other act fitted to deceive• any such act or omission which the lawspecially declares to be fraudulent

• ELEMENTS OF FRAUD

• There must be a representation or assertion and it must befalse

• the representation must relate to a material fact whichexists now or existed in the past

• the representation must have been made before theconclusion of the contract with the intention of inducing theother party to act upon it

• the representation must have been made with a knowledgeof its falsity

• ELEMENTS OF FRAUD

• the other party must have been induced to actupon the representation

• the other party must have relied upon therepresentation and must have been deceived

• the other party, acting on the representation,must have subsequently suffered some loss

•CONSEQUENCES OF FRAUD

• A contract induced by fraud is voidable at theoption of the party defrauded. Remedies -----

• he can rescind the contract

• he can insist on the performance of thecontract on the condition that he shall be putin the condition in which he would have beenif the representation made had been true

• he can sue for damages

•DISTINCTION BETWEEN FRAUD & MISREPRESENTATION

• Intention• Belief• Rescission And Damages• Discovery Of Truth

•MISTAKE

• Mistake may be defined as an erroneous beliefabout something.

•It may be a mistake of law or a mistake of fact

•MISTAKE

• Mistake of Law• Mistake of law of the country• Mistake of law of a foreign country

• Mistake of Fact• Bilateral mistake• Unilateral mistake

•MISTAKE

• Bilateral mistake• The following conditions must be fulfilled

• The mistake must be mutual• The mistake must relate to a matter offact essential to the agreement

• Bilateral mistake covers the following cases• Mistake as to the subject matter• Mistake as to the possibility of performingthe contract

•MISTAKE AS TO THE SUBJECT MATTER

• Mistake as to the EXISTENCE of the subject matterEg.: A offers to sell his car to B and the latteraccepts. At the time of the contract, both areunaware that the said car in the garage is destroyedby fire. Contract is void.

• Mistake as to the IDENTITY of the subject matterEg.: A offers to sell a car to B and the latteraccepts. A, owning two cars, is offering to sell Car1, while B is accepting to buy Car 2. Contract isvoid.•


•Mistake as to the QUALITY of the subject matterEg.: A offers to sell a piece of jewellery to B and thelatter accepts to pay a $ for it. Both are unaware of itsreal value. If found that the jewellery was moreexpensive, contract can be set aside.

•Mistake as to the QUANTITY of the subject matterEg. A asked B to supply 1 kg silver bar. B procured itand supplied to A, who after melting discovered that itweighed only 995 gms. Both were mistaken about itsweight before executing the contract, hence it was void.


•Mistake as to the TITLE of the subject matterIf a person sells something that he/she was notentitled to sell, then such sale is void. Eg.: Noownership

•Mistake as to the PRICE of the subject matterWhere both parties are mistaken as to the price ofthe subject matter, the contract entered intobetween them is void. Eg.: in case of modernpainting, etc.

•

•MISTAKE AS TO POSSIBILITY OF PERFORMING THE CONTRACT

• Physical impossibility:•Eg.: Contract by A to buy IPL ticket from B forwitnessing match to be held at Chennai. Unknownto both parties, the match had been cancelled.

• Legal impossibility:Where the law does not permit or make it possiblefor the parties to complete the contract. An import-export ban between countries.

•UNILATERAL MISTAKE

• A unilateral mistake is generally not allowed asa defence in avoiding the contract

• Exceptions• Mistake as to the identity of the personcontracted with• Mistake as to the nature of contract

•LEGALITY OF OBJECT

• Every contract must have a lawful object.•Where the object of an agreement is theperformance of an unlawful act, it becomesunenforceable.•In some cases, consideration may be lawful, butpurpose may be unlawful.•If either consideration or object, or both areunlawful, the agreement is void.


• A consideration or object is unlawful if;a) It is forbidden by lawb) It is of such a nature that, if permitted, it

would defeat the provisions of any lawc) It is fraudulentd) If it involves or implies injury to the person

or property of anothere) If the court regards it as immoralf) Where the court regards it as opposed to

public policy


• Unlawful Vs illegal agreement•Agreements opposed to public policy

a) Agreements of trading with an enemyb) Agreement to commit a crimec) Agreements which interfere with

administration of justiced) Agreements in restraint of legal proceedingse) Trafficking in public offices and titlesf) Agreements tending to create interest

opposed to duty


•Agreements opposed to public policy

g) Agreements restricting personal libertyh) Agreements in restraint of parental rightsi) Agreements in restraint of marriagej) Marriage brokerage agreementsk) Agreements to defraud creditorsl) Agreements in restraint of trade

•VOID AGREEMENTS

• The following agreements have been expresslydeclared to be void by the Contract Act :

• Agreements by incompetent parties (Sec. 11)• Agreements made under a mutual mistake of facts( Sec. 20)• Agreements the consideration or object of whichis unlawful (Sec. 23)• Agreements the consideration or object of whichis unlawful in part (Sec. 24)• Agreements made without consideration (Sec. 25)

•VOID AGREEMENTS


• Agreements in restraint of marriage (Sec. 26)• Agreements in restraint of trade (Sec. 27)• Agreements in restraint of legal proceedings (Sec.28)• Agreements the meaning of which is uncertain(Sec. 29)• Agreements by way of wager ( Sec. 30)• Agreements contingent of impossible events ( Sec.36)

•VOID AGREEMENTS


• Agreements to do impossible acts (Sec. 56)• In case of reciprocal promises to do things legaland also other things illegal, the second set ofreciprocal promises a void agreement (Sec. 57)

•WAGERING AGREEMENTSOR

WAGER (Sec. 30)

• A wager is an agreement between two parties bywhich one promises to pay money or money’s worthon the happening of some uncertain event inconsideration of the other party’s promise to pay if theevent does not happen.

•ESSENTIALS OF A WAGERING AGREEMENT

• Promise to pay money or money’s worth• Uncertain event• Each party must stand to win or loose• No control over the event• No other interest in the event

Performance of Contract

Performance of contract takes place when the parties to thecontract fulfill their obligations arising under the contractwithin the time and in the manner prescribed.

Acc to Sec 37 parties to a contract must either perform oroffer to perform their respective promises, unless suchperformance is dispensed with or excused.


Offer to perform (Sec. 38) Sometimes the promisor offers to perform his obligation

under the contract at the proper time and place but thepromisee does not accept the performance. This is knownas “tender”.

The tender of performance is equivalent to actualperformance


Requisites of a valid tender It must be unconditional It must be of the whole quantity contracted for or of the

whole obligation It must be by a person who is in a position and is willing

to perform the promise It must be made at the proper time and place


Requisites of a valid tender It must be made to the proper person It may be made to one of the several joint promisees In case of tender of goods, it must give a reasonable

opportunity to the promisee for inspection of the goods


Effect of refusal of a party to perform promise wholly When a party to a contract refuses to perform his

promise in its entirety, the promisee may put an end tothe contract.

But if the promisee has signified , by words or by conduct,his assent in the continuance of the contract, he cannotrepudiate it.

When a promisee puts an end to a contract, beingrightfully entitled to do so, it shall be deemed as if he hasrescinded a voidable contract and he shall be bound torestore to the other party all the benefits that he may havereceived under the contract.


Contracts which need not be performed When its performance becomes impossible When the parties to it agrees to substitute a new contract

for it or to rescind or alter it. When the promisee dispenses with or remits, wholly or in

part, the performance of the promise made to him orextends the time for such performance or accepts anysatisfaction for it


Contracts which need not be performed When the person at whose option it is voidable, rescinds

it When the promisee neglects or refuses to give the

promisor reasonable facilities for the performance of hispromise.

When it is illegal


By whom must contracts be performed ? Promisor himself Agent Legal representatives Third persons

Joint promisors

Discharge of Contract

Discharge of contract means termination of the contractualrelationship between the parties.

A contract is said to be discharged when it ceases to operate

Discharge of Contract

A contract may be discharged --- By performance By agreement or consent By impossibility By lapse of time

By operation of law By breach of contract

Discharge by Performance

Discharge by performance takes place when the parties to thecontract fulfil their obligations arising under the contractwithin the time and in the manner prescribed.

In such a case the parties are discharged and the contractcomes to an end.

Discharge by Performance

Performance of a contract may be :• Actual performance• Attempted performance or tender

Discharge by Agreement or Consent

It is the agreement of the parties which binds them, so bytheir further agreement or consent the contract may beterminated.

Discharge by Agreement or Consent

The various cases of discharge of a contract by mutualagreement are :

• Novation• Rescission• Alteration• Remission• Waiver• Merger

Discharge by Impossibility of Performance

If an agreement contains an undertaking to perform animpossibility, it is void ab initio.

It includes

Impossibility existing at the time of agreementKnown to partiesUnknown to parties

Impossibility arising subsequent to the formation ofcontract (supervening impossibility)


Discharge by supervening impossibility Destruction of subject matter of contract Non existence or non occurrence of a particular state of

things Death or incapacity for personal service Change of law or stepping in of a person with statutory

authority Outbreak of war


Impossibility of performance—not an excuse

• Difficulty of performance• Commercial impossibility• Impossibility due to failure of a third person• Strikes, lock outs and civil disturbances• Failure of one of the objects


• Effect of supervening impossibility

• When the performance of a contract becomes impossible orunlawful subsequent to its formation, the contract becomesvoid.


• Effect of supervening impossibility• Where one person has promised to do something which he

knew, or with reasonable diligence, might have known, andwhich the promisee did not know to be impossible orunlawful, the promisor must make compensation to thepromisee for any loss which the promisee sustains throughthe non performance of the promise


Effect of supervening impossibility

Where an agreement is discovered to be void or when acontract becomes void, any person who has received anyadvantage under such agreement or contract is bound torestore it.

Discharge by Lapse of time

The Limitation Act, 1963 lays down that a contract shouldbe performed within a specified period, called period oflimitation. If it is not performed and if no action is takenby the promisee within the period of limitation, he isdeprived of his remedy of law.

Discharge by Operation of Law

This includes : By death By merger By insolvency By unauthorized alteration of the terms of a written

agreement Rights and liabilities vested in the same person

Discharge by Breach of contract

Breach of contract means a breaking of the obligationwhich a contract imposes.

Breach of contract may be : Actual breach of contract Anticipatory or constructive breach of contract


Actual breach of contract At the time when the performance is due During the performance of the contractExpress repudiation Implied repudiation (impossibility created by the act

of the party to the contract)


Anticipatory breach of contract It occurs when a party to an executory contract declares

his intention of not performing the contract before theperformance is due. He may do so –By expressly renouncing his obligation under the

contractBy doing some act so that the performance of his

promise becomes impossible


Consequences Where a party to a contract refuses to perform his part

of the contract before the actual time arrives thepromisee may eitherRescind the contract and treat the contract as at an

end, and at once sue for damagesHe may elect not to rescind but to treat the contract

alive and wait for the time of performance and thenhold the other party liable for the consequences ofnon performance

Remedies for Breach of contract

When a contract is broken, the injured party has one ormore of the following remedies : Rescission of the contract Suit for damages Suit for quantum meruit Suit for specific performance of the contract Suit for injunction


Rescission

When a contract is broken by one party, the other partymay sue to treat the contract as rescinded and refusefurther performance.


Damages Ordinary damages Special damages Vindictive or Punitive or Exemplary damages Nominal damages

Liquidated damages


Ordinary Damages Ordinary damages are those which naturally arose in

the usual course of things from such breach The measure of ordinary damages is the difference

between the contract price and the market price at thedate of the breach


Special Damages Special damages are claimed in case of loss of profit When there are certain special circumstances and their

existence is communicated to the promisor, the nonperformance of the promise entitles the promisee tonot only claim the ordinary damages but also damagesthat may result therefrom


Special Damages—Example A, a builder, contracts to erect a house for B by the 1st

of Jan, in order that B may give possession of it at thattime to C to whom B has contracted to let it. A isinformed of the contract between B & C. A builds thehouse so badly that before the 1st Jan, it falls down andhas to be rebuilt by B who, in consequence, loses therent which he was to have received from C and isobliged to make compensation to C for the breach ofthe contract.


Special Damages—Example P bought from L some cake. He sold it to B who sold it

to various dealers, and they in turn sold it to variousfarmers, who used it for feeding cattle. The cake waspoisonous and the cattle fed on it died. Claims weremade by the various buyers against their sellers and Pclaimed against L the damages and costs he had to payto B. Is P right?


Special Damages—Example G, a tailor, delivered a sewing machine and some cloth

to a railway company to be delivered at a place where afestival was to be held. He expected to earn someexceptional profit at the festival but he did not bringthis fact to the notice of railway authorities. The goodswere delivered after the conclusion of the festival. Canthe tailor claim damages?


Vindictive Damages Such damages are awarded with a view to punish the

defendant in cases likeFor a breach of promise to marryFor wrongful dishonor of a cheque by a banker

possessing adequate funds to the credit of thecustomer


Nominal Damages Such damages are awarded in case of breach of contract

where there is only a technical violation of the legalright, but no substantial loss is caused thereby


Mitigation of Damages It is the duty of the injured party to take all reasonable

steps to mitigate the loss caused by the breach. He cannot claim to be compensated by the party in

default for loss which he ought reasonably to haveavoided


Liquidated Damages Sometimes parties to a contract stipulate at the time of

its formation that on the breach of the contract byeither of them, a certain specified sum will be payableas damages.

Liquidated damages represent a sum, fixed by theparties in a contract, which is a fair and genuine pre-estimate of the probable loss that might ensue as aresult of the breach.


QUANTUM MERUIT It means ‘as much as earned’. A right to sue on a quantum meruit arises where a

contract, partly performed by one party, has becomedischarged by the breach of the other party.


INJUNCTION It means an order of the court Where a party is in breach of a negative term of the

contract (i.e. where he does something which hepromised not to do), the court may, by issuing an order,prohibit him from doing so


Specific performance Where damages are not an adequate remedy, the court

may direct the party in breach to carry out his promiseaccording to the terms of the contract. This is called ‘specific performance’.


Specific performance Some of the instances where court may direct specific

performance are:A contract for the sale of a particular house or some

article or any other thing for which monetarycompensation is not enough because the injuredparty will not be able to get an exact substitute inthe market


Specific performance Specific performance will not be granted where :Monetary compensation is an adequate reliefThe contract is of a personal nature (a contract to

marry)The contract is made by a company beyond its

objects as laid down in its MOA

Quantum Meruit

Means – “as much as earned” or “as much as is merited”

When one party has done some work under a contract, and the other party repudiates the contract, or some event happens wheich makes further performance impossible, then the party who has performed the work can claim remuneration for the work he has already done.

Quantum Meruit

Where one person has expressly or impliedly requestedanother to render a service without specifying theremuneration, but it is implied that the service must bepaid for, there is implied a promise to pay quantummeriut, i.e., so much as the party rendering renderingservice deserves.

Right to claim quantum meruit is a claim on the quasi-contractual obligation which the law implies in thecircumstances.

Quantum Meruit

The right to quantum meruit arises only when the originalcontract is discharged.

If the original contract exists, the party can only resort toremedy in damages.

Suit for quantum meruit can be brought only by the partywho is not in default.

Claims – quantum meruit

The claims for quantum meruit arises in the following cases: When the agreement is discovered to be void When something is done without the intention to do so

gratuituously When there is an express or implied contract to render

services but no agreement as to remuneration When completion of the contract has been prevented by the

act of the other party When a contract is divisible When an indivisible contract is completely performed but

badly

CONTRACT OF INDEMNITY

A contract of indemnity is a contract whereby one partypromises to save the other from loss caused to him by theconduct of the promisor himself or by the conduct of anyother person.

Ex :- A and B claim certain goods from a railway company asrival owners. A takes delivery of the goods by agreeing tocompensate the railway company against loss in case B turnsout to be the true owner.


A contract of indemnity can be

Express or Implied

Ex :- A on the instruction of B, sold certain goods belongingto C. C held A liable for it and recovered damages from himfor selling it.


Rights of Indemnified (Indemnity holder) The Indemnified is entitled to recover from the promisor :

All damages which he may be compelled to pay All costs of suit which he may have to pay to third party All sums which he may have paid under the terms of any

compromise of any such suit

CONTRACT OF GUARANTEE

A contract to perform the promise or discharge theliability of a third person in case of his default.


Features: Concurrence Primary liability in some person Essentials of a valid contract Writing not necessary

DIFFERENCE



Two parties Three parties

The liability of the indemnifier to the indemnified is primary

The liability of the surety is secondary

There is only one contract There are three contracts

The liability of the indemnifier arises only on the happening of a

contingency

There is usually an existing debt, the performance of which is

guaranteed by the suretyAn indemnifier cannot sue a third party for loss in his own

name

A surety, on discharging the debt steps into the shoes of the

creditor

KINDS OF GUARANTEE

A contract of guarantee may either be oral or written

A contract of guarantee may either be specific orcontinuing

KINDS OF GUARANTEE

Specific guarantee A guarantee is a specific guarantee, if it is intended to

be applicable to a particular debt and thus comes to anend on its repayment.

Continuing guarantee A guarantee which extends to a series of transactions is

called a “continuing guarantee”.

Revocation of continuing guaranteeo By notice to creditoro By death of suretyo By other modes

By novation By variance in terms of contract By release or discharge of principal debtor By creditors act or omission impairing surety’s

eventual remedy By loss of security

Rights of Surety Rights against the creditorBefore payment of guaranteed debtRight of set offOn payment of guaranteed debt - Right to securities

(all securities)Right of subrogation

Rights against the principal debtorRight to be relieved from liabilityRight to be indemnified

Rights against co-sureties

Right of contribution Co-sureties to contribute equally Liability of co-sureties bound in different sums Release of a co-surety

132

Rights of the creditor The creditor is entitled to demand payment from the

surety as soon as the principal debtor refuses to pay ormakes default in payment.

Where surety is insolvent, the creditor is entitled toproceed in the surety’s insolvency and claim on a prorata basis.

133

Obligations of the creditor Not to change any terms of the original contract Not to release or discharge the Principal debtor Not to compound or give time to or agree not to sue the

Principal debtor Not to do any act which is inconsistent with the rights

of the surety

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Extent of surety’s liability Nature of liability – it is co-extensive (quantum of

obligation of surety is same as that of principal debtor).Usually his liability can’t be more or less than P.D.

Limitation of surety’s liability – guarantee for part ofthe entire debt; vs guarantee for entire debt subject to alimit

Liability under continuing guarantee – when initialcontract is void or voidable

DISCHARGE OF SURETY۩By Revocation

͏Notice to creditor͏Death of surety͏Novation

۩By conduct of the creditor͏Variance of terms͏Release of P.D.͏Compounding͏Creditor’s act impairing surety’s eventual remedy͏Loss of security

۩By invalidation of contract͏Guarantee by misrepresentation͏Guarantee by concealment͏Failure to join a surety͏Failure of consideration

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DISCHARGE OF SURETY

The liability of a surety under a contract of guarantee mayat any time be revoked by the surety, as to the futuretransactions, by notice to the creditor

By death of surety

By novation

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DISCHARGE OF SURETY

By release or discharge of Principal Debtor

By compounding with or giving time to or agreeing not to sue,principal debtor

By creditor’s act or omission impairing Surety’s eventual remedy

Loss of security

By surety’s guarantee obtained through misrepresentation orconcealment of material facts

By failure to join a co-surety or in case of failure ofconsideration.

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CONTRACT OF AGENCY

An agent is a person employed to do any act for another orto represent another in dealings with third persons.

The person for whom this act is done is called Principal

Agent is merely a connecting link between Principal andthird parties

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CONTRACT OF AGENCY

Essentials : Agreement between the principal and the agent Intention of the agent to act on behalf of the principal

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CONTRACT OF AGENCY

Creation of Agency The relationship of principal and an agent may arise –By express agreementBy implied agreementAgency by estoppelAgency by holding outAgency by necessity

By ratification

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CONTRACT OF AGENCY

Agency by Estoppel

Where a person has by his conduct or statementsinduced others to believe that a certain person is hisagent, he is estopped from subsequently denying it.

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CONTRACT OF AGENCY

Agency by holding out

A allows his servant B to buy goods for him on creditfrom C and pays for them regularly. On one occasion, Apays his servant cash to purchase the goods. The servantpurchases the goods on credit pocketing the money.Can C recover the price from A ?

Yes, since through previous dealings A has held out hisservant B as his agent.

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CONTRACT OF AGENCY

Agency by Necessity

This arises where there is no express or implied appointment of aperson as agent for another but he is forced to act on behalf of aparticular person.

In Emergency situations When a person is entrusted with property of another Husband & wife

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CONTRACT OF AGENCY

Requisites of a Valid ratification The agent must contract as agent

The principal must have been in existence at the timethe agent originally acted

The principal must also have contractual capacity atthe time of the contract as well as the time ofratification

Ratification must be made within a reasonable time

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CONTRACT OF AGENCY

Requisites of a Valid ratification The act to be ratified must be lawful one

The principal should have full knowledge of the facts

Ratification must be of a contract as a whole

Ratification of facts not within the principal’s authorityis ineffective

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CLASSIFICATION OF AGENTS

Special agents

General agents

Mercantile or commercial agents

Non- mercantile or non-commercial agents

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Mercantile or commercial agents Broker Factor Commission agent Del credere agent

Auctioneer Banker

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Non mercantile or Non-commercial agents Wife Insurance agent Forwarding agents Solicitors

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Sub agent & Substituted Agent

Sub agent Sub agent is a person employed by and acting under the

control of the original agent in the business of theagency.

Substituted agent Where an agent appoints or names other person for

being appointed as an agent in his place, such person iscalled a substituted agent.

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Sub agent & Substituted agent

General rule---Agent cannot appoint an agent

except

In case of following circumstances : Where expressly permitted by the principal Where the nature of the job is purely clerical and does

not involve the exercise of discretion In an unforeseen emergency The nature of agency is such where it cannot be

accomplished without the appointment of sub agent

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DUTIES OF AGENTS

To conduct the business of agency according to theprincipal’s direction

Not to make any secret profits

Not to deal on his own account

The agent should conduct the business with skill anddiligence that is generally possessed by persons engaged insimilar business

To render proper accounts

To pay sums received for the principal

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DUTIES OF AGENTS

An agent should not disclose confidential information Agent not entitled to remuneration for business

misconduct To use reasonable diligence, in cases of difficulty to

communicate with the principal When an agency is terminated by the principal dying or

becoming of unsound mind, all reasonable steps should betaken for the protection of the interests entrusted to him

No to allow duty and interest conflict Not to delegate authority

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RIGHTS OF AGENTS

Right to remuneration

Right of Retainer

Right of Lien

Right of stoppage in transit

Right of indemnification

Right to compensation for injury caused by principal’sneglect

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LIABILITY OF PRINCIPAL TO THIRD PERSONS

The Principal though acting through the agent is actinghimself.

The Principal is liable for actual authority or apparentauthority.

The principal is responsible only for those acts of the agentdone within his authority.

Misrepresentations by Agent

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LIABILITY OF PRINCIPAL TO THIRD PERSONS

The principal remains liable to the third parties evenwhere his name was not disclosed

The liability of the principal continues even in cases whereagent is held personally liable

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TERMINATION OF AGENCY

By revocation by the principal

On the expiry of fixed period of time

On the performance of the specific purpose

Insanity or death of the principal or agent

In case subject matter is destroyed or becomes illegal

Insolvency of the principal

By renunciation of agency by the agent

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