CONTENTS• What is a Contract?• Valid Contract and its essential characteristics• Classification for Contract• Various forms of Quasi Contracts
AGREEMENT• The contract is formed only on the basis of agreement. It is a combined effect of offer and acceptance. AGREEMENT= OFFER+ ACCEPTANCE According to section 2(e), Agreement is a promise or set of promises forming consideration for each other.
CONTRACT• According to sec.2(h), CONTRACT may be defined as “An Agreement enforceable by law ”.• These agreements creates Rights and Obligations between the Parties which can be claimed in the Court of Law.(Legal Obligation)
THREE MAJOR COMPONENTS OF A CONTRACT1. AGREEMENT3. OBLIGATION5. ENFORCEABILITY
ESSENTIALS OF A VALID CONTRACT• An Agreement has to fulfill the following legal conditions to become a Contract –• Two or more parties (Offer and Acceptance)• Intension to create a Legal Relationship• Lawful Object• Capacity of parties (Major, Sound mind)• Free Consent (understanding of terms and conditions)
ESSENTIALS OF A VALID CONTRACT CONTINUED..6) Writing and Registration and Duly stamped (not Oral Contract)7) Certainty (proper terms and conditions)8) Possibility of the Performance (it should not be impossible)9) Must not have been disqualified by any law
CLASSIFICATION OF CONTRACTS ON THE BASIS OFCREATION EXECUTION ENFOECEABILITY(FORMATION) (PERFORMANCE) (VALIDITY) -EXECUTED -VALID- EXPRESS -EXECUTORY - VOID-IMPLIED -PARTLY - VOIDABLE- QUASI - ILLEGAL
ON THE BASIS OF FORMATION1. EXPRESS CONTRACT- Express contract is one which is made by words spoken or written at the time of formation . Example1 X says to Y, will you buy a car for Rs. 100000? Y says to X, I am ready to buy you car for Rs. 100000. It is an express contract made orally. Example 2 X writes a letter to Y, I offer to sell my car for Rs. 100000 to you. Y send a letter to Y, I am ready to buy you car for Rs. 100000. It is an express contract made in writing.
2. IMPLIED CONTRACT An implied contract is one which is inferred from the acts or conduct of the parties or from the circumstances of the cases. Example : X, a coolie in uniform picks up the bag of Y to carry it from railway platform to the taxi stand, without being told by Y to do so and Y allows him. In this case there is an implied offer by the coolie and an implied acceptance by the passenger. Now, there is an implied contract between the coolie and the passenger and he is is bound to pay for the services of the coolie.
3. QUASI CONTRACTS• These contacts are based on the principles of Justice and Equity.• Quasi means ‘ as if ’ or ‘ similar to ’• Also called as ‘ Implied Contracts’• It is just like a Contract as it also creates legal obligations.• But the legal obligation created by Quasi Contract do NOT rest on any Agreement, but are IMPOSED BY LAW.Example: Where certain books are delivered to a wrong address then they are under an obligation to either pay for them or return them.
ON THE BASIS OF PERFORMANCE 1. EXECUTED CONTRACT- It is a contract where both the parties to the contract have fulfilled their respective obligations under the contract. Example: X offers to sell his car to Y for Rs. 1 lakh. Y accepts X’s offer. X delivers the car to Y and Y pays Rs. 1 lakh to X. It is an executed contract.
2. EXECUTORY CONTRACT- It is a contract where both the parties to the contract have still to perform their respective obligations. Example: X offers to sell his car to y for Rs. 1 lakh. Y accepts X’s offer. If the car has not yet been delivered by X and the price has not yet been paid by Y, it is an Executory contract
3. PARTLY EXECUTED AND PARTLY EXECUTORY CONTRACT: It is a contract where one of the parties to the contract has fulfilled his obligation and the other party has still to perform his obligation. Example: X offers to sell his car to y for Rs. 1 lakh on a credit of 1 month. Y accepts X offer. X sells the car to Y. Here the contract is executed as to X and Executory as to Y.
ON THE BASIS OF VALIDITY1. VALID CONTRACT- contract which satisfies all the conditions prescribed by law is a valid contract. Eg. X offers to marry Y. Y accepts X offer. This is a valid contract.5. VOID CONTRACT- [sec 2 (g)] A void contract is a contract which is valid when entered into but which subsequently became void due to impossibility of performance, change of law or some other reason. Eg. X offers to marry Y, Y accepts X offer. Later on Y dies. This contract was valid at the time of its formation but became void at the death of Y.
3. VOIDABLE CONTRACT:• An arrangement which is enforceable by law at the option of one or more of the parties thereon but not at the option of other or others, is a voidable contract.• If the essential element of free consent is missing in a contract, the law confers right on the aggrieved party either to reject the contract or to accept it. However, the contract continues to be good and enforceable unless it is repudiated by the aggrieved party.
• Eg. X threatens to kill Y, if the does not sell his house for Rs. 1 lakh to X. Y sells his house to X and receives payment. Here, Y consent has been obtained by coercion and hence this contract is voidable at the option of Y, the aggrieved party. If Y decides to avoid the contract he will have to return Rs. 1 lakh which he had received from X. If Y does not exercise his option to repudiate the contract within a reasonable time and in the meantime Z purchases that house from X for 1 lakh in good faith, Y cannot repudiate the contract.
4. ILLEGAL CONTRACT: An illegal contract is unlawful. Such an agreement cannot be enforced by law.Thus, illegal agreements are always void -ab- initio (i.e. void from the very beginning) Eg. X agrees to Y Rs.1 lakh to kill Z. Y kills Z and claims Rs. 1 lakh. Y cannot recover the amount from X because the agreement between X and Y is illegal and also its object is unlawful.
QUASI CONTRACTS• Quasi means ‘ as if ’ or ‘ similar to ’• It is just like a Contract as it also creates legal obligations.• But the legal obligation created by Quasi Contract do NOT rest on any Agreement, but are IMPOSED BY LAW. - Inspite of not having contract between parties , the rights and obligations are created by operation of law rather than offer and acceptance ie Agreement.
TYPES OF QUASI CONTRACTS Sec 68 to 721. Claim for supply of necessaries to person incapable of contracting2. Reimbursement of money paid, in which he is interested3. Obligation of person to pay for enjoying benefit of non-gratuitous act4. Responsibility of finder of goods5. Liability of a person to whom money is paid or thing delivered by mistake or under coercion
1. Claim for supply of Necessaries to person incapable of contracting• If a person incapable of entering into a contract or any one who is legally bound to support, is supplied by another person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.
• Illustrations: (a) A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B’s property. (b) A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition in life. A is entitled to be reimbursed from B’s property.
2. Reimbursement of money paid, in which he is interested• A person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other.
• Illustrations: The house in which A lives as a tenant is declared to be sold by municipal corporation for non payment of tax by the owner of the house. A makes the payment in order to protect his interest. A is conferred a legal right to recover such payment from the owner of the house.
3. Obligation of person to pay forenjoying benefit of non-gratuitous act• Where a person lawfully does anything to another person, or delivers anything to him not intending to do so gratuitously and such other person enjoys the benefit there of, the latter is bound to make compensation to the former in respect of or to restore the thing so done or delivered.
• Illustrations: A, a tradesman, leaves goods at B’s house by mistake. B treats the goods as his own. He is bound to pay A for them.
4. Responsibility of finder of goods• A person who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a bailee.
5. Liability of a person to whom money is paid or thing delivered by mistake or under coercion• A person to whom money has been paid, or anything delivered by mistake or under coercion, must repay or return it.• Illustration: A and B jointly owe Rs. 100 to C. A alone pays the amount to C, and B not knowing this fact, pays Rs.100 over again to C. C is bound to repay the amount to B
Discharge of contract• Discharge of contract means termination of the contractual relationship between the parties. A contract is said to be discharged when it ceases to operate, i.e., when the rights and obligations created by it comes to an end.
A CONTRACT MAY BE DISCHARGED1. By performance2. By mutual agreement or consent3. By impossibility of performance4. By lapse of time5. By operation of law6. By Breach of contract
Discharge by performance• Performance means the doing of that, which is required by the contract.• Discharge by performance takes place when the parties of the contract perform wit h in t h e t ime a n d in t h e ma n n e r p r e s c r ib e d .• In such a case, the parties are discharged and the contract comes to an end. But if only one party performs the promise, he alone is discharged.• Such a party gets a right of action against the
• Performance of a contract is the most usual mode of discharge.• It may be by- Actual performance and- Attempted performance or tender.
ACTUAL PERFORMANCE• When both the parties perform their promises, the contract is discharged.• Performance should be complete, precise and according to the terms of the agreement.• Most of the contract are discharged by performance in this manner.
Attempted performance or tender • Tender is not actual performance but is only an offer to perform the obligation, but the promisee refuses to accept the performance.
Discharge by Mutual Agreement or Consent• Since a contract is created by mutual agreement, it can be discharged by mutual agreement
Discharge by Mutual Agreement or Consent• Types of discharge by agreement or consent• a) Novation• b) Rescission• c) Alteration• d) Remission• e) Waiver
Novation (sec. 62)• Novation means the substitution of a new contract for the original contract.• Such a new contract may be either between the s a me p a r t ie s o r b e t we e n d if f e r e n t p a r t ie s• The consideration of new contract is the discharge of the original contract.• Example: A owes money to B under a contract. It is agreed between A,B and C that B shall henceforth accept C as his debtor, instead of A. The old debt of A and B no longer exists and a new debt from C to B has been
Rescission (sec. 62)• Rescission of a contract takes place when the parties to a contract may decide that they will forget the contract and will not bring a new contract into existence to replace it.• Cancellation of contract by any party or all the parties.• Example: X promises Y to deliver goods on 1st Oct at his go- down. And Y promises to pay for it on 1st Nov. X does not supply the goods. Y may rescind the contract.
Alteration• Alteration means a change in the terms of a contract with mutual consent of the parties. Alteration discharges the original contract and creates a new contract. However, parties to the new contract must NOT change.• Example: X promises to sell and deliver 100 bags on 1st Oct. And Y promises to pay on 1st Nov. Afterwards X and Y mutually decide that the goods shall be delivered in 5 equal installments at Z’s godown.
Remission (sec.63)• Remission means acceptance by the promisee of a lesser fulfillment of the promise made.• In other words it may be defined as acceptance of a less than what was contracted.• Example A owes to B Rs 5000. A pays to B Rs 2000. B accepts it in full satisfaction. The old debt is discharged.
Waiver• A waiver is the voluntary relinquishment or surrender of some known right or privilege.• A contractual party might waive the performance of a contractual duty by another party. A waiver doesnt have to be written or even spoken -- a party may waive a contractual duty by conduct.• Example A landlord fails to object to a tenant paying rent 10 days late every month, he may be considered to have voluntarily waived on-time payment by the tenant.
Discharge By impossibility of performance• Section 56, which deals with this question, mentions two kinds of impossibility.• Firstly, impossibility existing at the time of the making of the contract.• Secondly, a contract which is possible of performance and lawful when made, but the same becomes impossible or unlawful thereafter.
1. INITIAL IMPOSSIBILITY• An agreement to do an act impossible in itself is void. The object of making any contract is that the parties to it would perform their respective promises. If a contract is impossible of being performed, the parties to it will never be able to fulfil their object, and hence such an agreement is void.• Example, A agrees with B to discover treasure by magic. The performance of the agreement being impossible, the agreement is void. Similarly, an agreement to bring a dead man to life is also void.
2. SUBSEQUENT IMPOSSIBILITY• The performance of the contract may be possible when the contract is entered into but because of some event, which the promisor could not prevent, the performance may become impossible or unlawful. Section 56 makes the following provision regarding the validity of such contracts :• “A contract to do an act which after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, becomes void when the act, becomes impossible or unlawful.”
2. SUBSEQUENT IMPOSSIBILITY Examples..• A and B contract to marry each other. Before the time fixed for marriage, A goes mad. The contract becomes void.• A contracts to act at a theatre for six months in consideration of a sum paid in advance by B. On several occasions A is too ill to act. The contract to act on those occasions becomes void.
Discharge by lapse of time• The limitation act, 1963 lays down that a contract should be performed within a specified period, called period of limitation. If it is not performed, and if no action is taken by the promisee within the period of limitation, he is deprived of his remedy at law.(ie the contract is terminated)• For example: There is a contract of loan between A and B. Her limitation period is 3 years. After completion of 3rd year discharge of contract takes place and debtor – creditor relationship comes an end. Thus it becomes time bared debt which cannot be recovered by means of legal proceedings.
Discharge By operation of law• A contract may be discharged independently of the wishes of the parties, i.e., by operation of law. This includes discharge– a)by death (in the case of contracts for personal service). b)By insolvency. c)By unauthorized alteration of the terms of a written agreement. d)By the identity of promissor and promisee. For example: X has drawn a bill on Y. Here X has right to collect amount on the bill and Y has liability to pay. There after X has endorsed the bill to Z. Where Z has got the right and liability is with Y. Assume that Z has endorsed the bill to Y. Now right as well as liability are with Y. This situation discharges the contract
DISCHARGE BY BREACH OF CONTRACT• When a party having a duty to perform a contract fails to do that, or does an act whereby the performance of the contract by him becomes impossible, or he refuses to perform the contract, there is said to be a breach of contract on his part.• On the breach of contract by one party, the other party is discharged from his obligation to perform his part of the obligation.
• He also gets a right to sue the party making the breach of contract for damages for the loss occasioned to him due to the breach of contract.• The breach of contract may be either ACTUAL, i.e., non-performance of the contract on the due date of performance, or ANTICIPATORY, i.e., before the due date of performance has come.
• For example A is to supply certain goods to B on 1st January. On 1st January A does not supply the goods. He has made actual breach of contract. On the other hand, if A informs B on 1st December that he will not perform the contract on 1st January next, A has made anticipatory breach of contract
REMEDIES OF BREACH OF CONTRACT• A Remedy is the course of action available to an aggrieved party (ie the party not at default) for the enforcement of a right under a contract.
Remedies for breach of contract• Cancellation or Rescission• Specific performance• Injunction• Quantum Meruit• Damages
Cancellation or Rescission• When the contract is broken by one party, the other party is free to rescind and refuse further performance.• In such a case aggrieved party is discharged from all the obligation under the contract and is entitled to claim compensation sustained because of the non-performance of the contract.
• Example:• A, a singer contracts with B, manager of theatre, to sing at his theatre every night in every week during the next two months.• B promises to pay her Rs. 1K for each night performance.• On the sixth night A willfully remains absent from the theatre• B in consequence rescinds the contract.• B is entitled to claim compensation for the damage which he has sustained through the non-fulfilment of the contract.
Suit for Damages• Here the aggrieved party will go to the court of law and ask for damages or compensation for the breach of contract.• They are monetary compensation allowed for the loss suffered by the aggrieved party• The object is not to punish the party but to make good the financial loss suffered by the aggrieved party.
Damages are of four kinds-• General or ordinary damages• Special damages• Vindictive or exemplary damages• Nominal damages
General or Ordinary damages• In a contract for sale of goods, the measure of ordinary damages is the difference between contract price and the market price of such goods on the date of breach
• Example: On 1st Dec, X contracted to sell and deliver 50 tons of wheat @ Rs 8000 per ton to Y on 1st Jan. On 20th Dec, Y afterwards, contracted to sell those goods to Z @ Rs 10000 per ton. X failed to deliver on 1st Jan, when price of wheat was 9500 per ton.• Y is entitled to recover Rs 75000 and not the profit as it is the indirect consequence of the breach of contract.
Special damages• It would be the compensation for the special losses caused to the aggrieved party by the special circumstances attached to the contract.• The phrase “special damages” is often used interchangeably with the term “consequential damages”. This is to indicate that the damages are the “consequence” of a contractual breach, though they might not have been directly caused by the breach of contract.
• Example:• A, a builder, contracts to erect and finish a house by 1st Jan, in order that B may give possession of it at that time to C. A is informed of the contract between B and C. A builds the house so badly that before 1st Jan it falls down, and has to be rebuilt by B, who, in consequence, loses the rent which he was to have received from C, and is obliged to make compensation to C for the breach of his contract.• A must make compensation to B for the cost of rebuilding, for the rent lost and for the compensation made to C.
Punitive or Vindictive Damages• Punitive damages are damages that punish the wrongdoer in a breach of contract lawsuit. They arent based on actual economic loss like compensatory damages.
• Example: i) Breach of promise to marry (damages are calculated on mental injury sustained) ii) wrongful dishonour of cheque by a banker
Nominal damages• Nominal damages are awarded where aggrieved party has been injured but did not incur any financial losses. They are not intended to compensate the victim but rather are awarded to vindicate aggrieved party’s rights. • These are called nominal damages, because they are very small, say one rupee or one dollar.
Example:• An injured, who proves that a defendants actions caused the injury but fails to submit medical records to show the extent of the injury may be awarded only nominal damages. The amount awarded is generally a small, symbolic sum, such as one dollar
Suit for Specific performance• It means demanding the court’s direction to the defaulting party to carry out the promise according to terms of the contract.• Example:• X agreed to sell an old painting to Y for Rs 50,000. Subsequently, X refused to sell the painting. Here, Y may file a suit against X for the specific performance of the contract.
Suit for Injunction• It means demanding for court’s stay order.• Injunction means an order of the court which prohibits a person to do a particular act.• Where a party to a contract does something which he promised not to do, the court may issue an order prohibiting him from doing so.
Example:• W agreed to sing at L’s theatre only during the contract. But he makes contract with Z to sing at another theatre and refused to perform the contract with L.• W could be restrained by injunction from singing for Z.
Suit for Quantum Meruit• Quantum Meruit means ‘as much as earned’• Right to Quantum Meruit means a right to claim the compensation for the work already done.• Example:• C an owner of a magazine, engaged P to write a story to be published by installments in his magazine. After a few installments were published, the publication of the magazine was stopped. It was held that P could claim payment for the part already published.