UNIT-2

BUSINESS LAW CONTRACTS

Group Name: Avengers

GROUP MEMBERS: SUDHAKAR 12031EIB05 PRATHEEK 12031EIB06 PRAPHULLA 12031EIB09 HARITHA 12031EIB23 RAMANA 12031EIB24 SHIVA LEELA 12031EIB25

Sanctity of Contracts

Sanctity of Contracts
What is contract? Mainly enforceable by sovereign state. Case of ONGCs demands in respect of Cairns.

Principles of Governing the formation

Principles of Governing the formation

Agreement Consideration Free consent Contractual capacity Legality Form(written,oral etc) Legal relations

Types
Depending on number of obligations:
Unilateral Bilateral

Cases: Advertisement

Performance and Termination of Contracts

 The cases in which a contract is discharged may be classified as follows:

A. By performance or tender. B. By mutual consent. C. By impossibility of performance. D. By operation of law. E. By lapse of time F. By breach of Contract

A. By performance or tender:
(a) Actual Performance When both the parties perform their promises. (b) Attempted Performance or tender Only an offer to perform the obligation under the contract.

B. Discharge by mutual consent or agreement:

The termination of contract by further agreement or consent. Ways to do so:

1. Novation 2. Rescission 3. Alteration 4. Remission 5. Waiver 6. Merger

C. By Impossibility of Performance

(a) Inherent impossibility (i) Known to the parties (ii) Unknown to the parties
(b) Subsequent impossibility

Cases of Subsequent impossibility

(i) Destruction of subject matter of contract [Case: Taylor v. Caldwel ]

A music hall was agreed to be let out on certain dates, but before those dates it was destroyed by fire. Held, that the owner was absolved from liability to let the building as promised

Cases of Subsequent impossibility

ii) Non-existence or non-occurrence of a particular state of things [Krell v. Henry] A contract was to hire a flat for viewing the coronation procession of the king. The procession had to be cancelled on account of kings illness. In a suit for the recovery of the rent, it was held that the contract became impossible of performance and that the hirer need not pay the rent

(iii) By the death or disablement of the parties (iv) Subsequent illegality (v) Declaration of war

Impossibility of performance not an excuse

1. Difficulty of performance [ Keshav Lal v. Dewan Chand] D agreed to supply coal with certain time. Due to Govt restrictions on the transport of coal from collieries there was a failure of delivery in time. But since coal was available in the market from where D could have purchased it. D will not be discharged on the ground of supervening impossibility

2. Commercial impossibility Example: X promised to send certain goods from Bombay to Antwerp in September, In August war broke out and shipping space was not available except at very high rates.

Held : The increase of freight rates did not excuse performance

3. Impossibility due to failure of a third person 4. Strikes, lockouts and civil disturbances [Case: Jacobs v. Credit Lyonnais ] A agreed to supply B certain goods to be produced in Algeria. The goods could not be produced because of riots and civil disturbances in that country. Held : There was no excuse for non-performance of the contract

5. Failure of one of the objects [Herne Bay Steamboat Co. v. Hutton K.B.] A agreed to let a boat to H to (i) view the naval review at the coronation and (ii) to cruise round fleet. Owing to the kings illness, the naval review was cancelled, but the fleet was assembled and the boat could have been used to cruise round the fleet. Held : The contract was not discharged

Effects of Supervening Impossibility (i) Contract becomes void (ii) Compensation for the loss suffered (iii) Restore the benefit

D. By Operation of Law
1. By death 2. By insolvency 3. By merger 4. By the unauthorised alteration of terms of a written document

E. By lapse of time F. By breach (i) Actual Breach of Contract (ii) Anticipatory Breach of Contract

Contractual Remedies

What is a Remedy?

A remedy is the means given by law for the enforcement of a right.

Types of Remedies:

Rescission of the contract Suit for Damages Suit for specific performance of the Contract Suit upon Quantum Meruit Suit for injunction.

Remedies for Breach of Contract

Breach of Contract

Rescission and Restitution

Damages

Specific Performance

Injunction

Quantum Meruit

Compensatory

Consequential

Liquidated

Punitive

Nominal

1. RECISSION When a contract is broken by one party, the other party may sue to treat the contract as rescinded and refuse further performance. In such a case, he is absolved of all his obligations under the contract. E.g: A promises B to supply 10 Bags of cement on a certain day. B agrees to pay the price after the receipt of the goods. A does not supply the goods. B is discharged from liability to pay the price.

The Court may grant Rescission, if

Where the contract is voidable by the plaintiff

Where the contract is unlawful for causes not apparent on its face and the defendant is more to blame than the plaintiff.

2. DAMAGES

Damages are the monetary compensation allowed to the injured party by the court for the loss of injury suffered by him by the breach of a contract.
Ordinary Damages Special Damages Exemplary or Punitive or Vindictive Damages Nominal Damages Damages for Inconvenience and Discomfort Liquidated Damages and Penalty Stipulation of Interest

Ordinary Damages

When a contract has been broken, the injured party can recover from the other party such damages as naturally and directly arose in the usual course of things from the breach. These damages are known as ordinary damages.
E.g.: A contracts to sell and deliver 50 quintals of Farm wheat to B at Rs.475 per quintal, the price to be paid at the time of delivery. The price of Wheat rises to Rs. 500 per quintal and A refuses to sell the Wheat. B can claim damages at the rate of Rs.25 per quintal.

Special Damages:
These damages can be recovered if the special circumstances which would result in special loss in case of breach of a contract are communicated to the promisor, e.g. loss of profits on account of default by the other party to the contract. e.g. Loss of Contracts, Loss of projects due to breach of specific promise..

Exemplary or Punitive or Vindictive Damages

These are which are in the nature of punishment. The Court may award these damages in case of : Mental Injury, agony, trauma etc.. Loss of Goodwill Wrongful dishonor of a cheque by a banker (loss of reputation of the institute)

Nominal Damages:
These are awarded where there is technical violation of a legal right but the aggrieved party has not suffered any loss because of breach of contract. Damages for Inconvenience and Discomfort: If a party has suffered physical inconvenience and discomfort due to breach of contract, that party can recover the damages

Liquidated Damages and Penalty: These refer to the specified sum fixed by the party at the time of the formation of contract in the form of penalty, in case any breach of contract. Pre-estimated price for the loss/damage

3. 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 become discharged by the breach of the contract by the other party. The right is founded not on the original contract which is discharged or is void but on an implied promise by the other party to pay for what has been done.

4. Specific Performance

In certain cases, damages are not an adequate remedy. The court may, in such cases, direct the party in breach to carry out his promise according to the terms of the contract. This is a direct by the court for Specific Performance of the contract at the suit of the party not in breach.

Cases which fall under Specific Performance (A)When the act agreed to be done is such that compensation in money for its nonperformance is not an adequate relief. (B) When there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done. (C) When it is probable that the compensation in money cannot be got for the nonperformance of the act agreed to be done.

Specific performance will not be granted when:

Damages are an adequate remedy The contract is not certain, or is inequitable to either party The contract is in its nature revocable The contract is made by trustees in breach of their trust The contract is of a personal nature E.g: contract to marry The contract is made by a company in excess of its powers as laid down in its M.O.A The court cannot supervise its carrying out E.G. Building contracts

5. Injunction

Where a party is in breach of a negative term of a contract, the court may , by issuing an order, restrain him form doing what he promised not to do. Such an order of the court is known as an Injunction. e.g. Demanding courts stay order.

Special Contracts

CONTRACT OF INDEMNITY

CONTRACT OF INDEMNITY There are only two parties involved i.e. the person who promises to make good the loss generally known as the indemnifier (promisor) and the person whose loss is to be made good called as the indemnified (promisee).

CONTRACT OF INDEMNITY There is only one contract between the parties. There is an undertaking on the part of the indemnifier to be answerable for the debt or default of another.

CONTRACT OF INDEMNITY The liability of the indemnifier to the indemnified is primary and independent. This contract is for the reimbursement (compensation) of loss.

CONTRACT OF INDEMNITY It is a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person. It is made in order to protect the promisee against anticipated loss. Eg: Insurance Agreement

Contract of Guarantee

Meaning and Essentials

Acc to Sec 126 Its a Contract to perform the promise or to discharge the liability of a third person in case of his default. Parties- Surety, Principal debtor, Creditor

Features of Guarantee

Concurrence A person cannot become the surety without the consent of the principal debtor. Primary liability in some person No liability no contract of guarantee. For e.g. Time Barred debt Consideration Writing not necessary Capacity to contract should be valid

Types of Guarantee (Sec 129)

Specific, Simple or Limited Guarantee: it extends to a single transaction. For e.g.: A guarantees B that C would make payment of Rs.10,000 for the deliver of 10 pairs of shoes on 20th Sep. After the completion of obligations the guarantee would be discharged. Continuing Guarantee: It extends to series of transactions. For e.g. A guarantees B for all the payments that the C would make to B for the delivery of shoes.

Types of Guarantee (Sec 129)

Revocation of Continuing Guarantee: By Notice of Revocation (Sec 130) By Death of Surety. (Sec 131)

Nature and Extent of Suretys Liability.

Liability of Surety is secondary It is coextensive with that of the principle debtor- all costs (sec 128) i.e. Quantum of obligation of a surety is the same (or less than if agreed) as that of the principal debtor. Liability under continuing guarantee

Rights of Surety

RIGHTS AGAINST CREDITOR: To insist the creditor to sue the principal debtor, but surety will have to indemnify the creditor for any expenses or loss resulting therefrom. Right to set off. Right of Subrogation (Sec 140) Surety getting rights of principal debtor after the payment of the guaranteed debt.

 RIGHT AGAINST PRINCIPAL DEBTOR Right to Indemnity (Sec 145) Right to be relieved of liability RIGHT AGAINST CO SURETIES Co Sureties to contribute equally. Liability of Co Sureties bond in different sums.

DISCHARGE OF SURETY

Revocation by Novation Variance in terms of contract (M.S. Anirudhun V. Thomcos Bank Ltd.) Release or Discharge of principal debtor. Composition, Extension of time and Promise not to sue. Failure on part of some other persons to join as co sureties.

DISCHARGE OF SURETY

Guarantee obtained by misrepresentation Guarantee obtained by concealment.

Agency and Bailment

INDIAN CONTRACT LAW 1872

Section 182 :

Features :

Principal is answerable SECTION 185: Consideration is NOT necessary Competent Principal Agent can be minor or unsound

TEST : Capacity to create contractual relationship between the principal and the third party and to bind the principal by his acts.

Classification:

Creation of Agency:

1) 2) 3) 4)

By Express Authority By Implied Authority By estoppel By holding out By necessity By Ratification By Operation of Law

RIGHTS:

DUTIES:

Right to retainer Right to receive remuneration Right of lien Right to be indemnified against consequences of acts done in good faith Right to receive compensation

To act according to directions or custom trade. To act with reasonable care and skill. To render account. To communicate with principal and to obtain his instructions. To pay sum received for principal.

TERMINATION:
BY ACT OF PARTIES: By mutual agreement. By revocation of authority by the principal. By renunciation of the agency by the agent. BY OPERATION OF LAW: On completion of business of agency. On death. On insolvency of principal. On expiry of fixed period. On the destruction of the subject matter. On dissolution of company. On principal becoming an alien enemy.

BAILMENT: Indian Contract Act

Section 148:

KINDS:

BASED ON BENEFITS: 1.Bailor Benefit 2.Bailee Benefit 3.Mutual Benefit BASED ON REWARD: 1.Gratuitous bailment 2.Non-gratuitous bailment

BAILEE:

DUTIES: Take care of goods No unauthorized use of goods Not to mix with his own goods To return goods Not doing any act against the terms of bailment Returning any profit

RIGHTS: To compensate if the bailed good is damaged or lost To receive necessary expenses Delivary of goods to one of the joint oweners Against third parties

BAILOR:
RIGHTS: Right of indemnity for losses due to negligence by bailee Compensation for unauthorized use Compensation when the bailee mixes Right to take back the goods

DUTIES: To disclose faults in goods bailed To repay the necessary expenses To indemnify the bailee

TERMINATION:

Doing an act against the terms and conditions At desire of the bailor in case of gratuitous bailment On expiry of period On accomplishment of object Death of the bailor or bailee

Partnership

INTRODUCTION

The process of registering a company is know a incorporation. There are different kinds of legal structures among which we can choose our business to be. They are:
A sole proprietorship A partnership firm A private & public limited company.

Partnership agreement When starting a partnership business the following terms should be contained in the partnership agreement
Amount of capital Profit and los sharing ratio Salary of commission payable Duration of business Name and address Duties and power Nature and place of business Any other terms and conditions

Different types of Partnerships

Active Partners Dormant Partners Nominal Partners Minor as a partner

Features of Partnership business

Lawful business Competence of partners Unlimited liability Voluntary registration No separate legal existence Restriction on transfer of interest Continuity of business

Advantages of Partnership firm

Easy to form Availability of large resources Better decisions Flexibility in operations Sharing risks Protection of interests of each partner Benefits of specialization

Disadvantages of Partnership firm

Unlimited liability Uncertain life Lack of harmony Limited capital No transferability of share

Partnership

Business suitable for partnership legal structure How to form partnership deeds and start a partnership firm?

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