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2010 11 pgp1-lab_written report_section b_group 13_18_nov2010


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2010 11 pgp1-lab_written report_section b_group 13_18_nov2010

  1. 1. Group 13 Narendra Reddy Yaddula Sachin Rane Soumen Sarkar Suman Surendranath Murmu  Rohan Mishra Classification of Contracts & Remedies for Breach of Contract
  2. 3. Classification According to Validity <ul><li>Valid Contract </li></ul><ul><ul><li>An Agreement that is enforceable at law </li></ul></ul><ul><ul><li>Compliance with essential elements in Indian Contract Law </li></ul></ul><ul><li>Void Contract </li></ul><ul><ul><li>A contract which ceases to be enforceable by law </li></ul></ul><ul><ul><li>A valid contract becomes void due to impossibility or illegality </li></ul></ul><ul><ul><li>A contract cannot be void right from the time of its formation – void ab initio </li></ul></ul><ul><li>Voidable Contract </li></ul><ul><ul><li>A contract, which can be put to an end at the options of some of the parties to the contract </li></ul></ul><ul><ul><li>If the parties opt not to avoid the contract, it is as good as a valid contract </li></ul></ul>
  3. 4. Voidable Contracts Contd.. <ul><li>A contract becomes voidable </li></ul><ul><ul><li>When the consent of one or more parties (aggrieved parties) is obtained through coercion, fraud or undue influence </li></ul></ul><ul><ul><li>When a contract contains reciprocal promises and one party prevents the other from performing promise </li></ul></ul><ul><ul><li>When a party fails to perform a contract in the specified time </li></ul></ul><ul><li>Status of a voidable contract </li></ul><ul><ul><li>When a party at whose option a contract is voidable decides not avoid the contract, the contract is as good as valid </li></ul></ul><ul><ul><li>When the party decides to avoid such contract </li></ul></ul><ul><ul><ul><li>The contract comes to an end </li></ul></ul></ul><ul><ul><ul><li>The aggrieved party can claim compensation, if any </li></ul></ul></ul><ul><ul><ul><li>The aggrieved party is liable to restore any benefits received under the contract </li></ul></ul></ul>
  4. 5. Classification According to Formation <ul><li>Express Contract </li></ul><ul><ul><li>Terms of contract expressly agreed upon at the time of formation of contract </li></ul></ul><ul><ul><li>Express Promise - Offer or acceptance made in words </li></ul></ul><ul><ul><li>Express promise results in an express contract </li></ul></ul><ul><li>Implied Contract </li></ul><ul><ul><li>Inferred from the acts or conduct of the parties or course of dealings between them </li></ul></ul><ul><ul><li>May results from continuing course of conduct of the parties </li></ul></ul><ul><ul><li>Implied Promise - Proposal or Acceptance made with means other than words </li></ul></ul><ul><li>Quasi-Contract </li></ul><ul><ul><li>Created by law </li></ul></ul><ul><ul><li>Legal obligation imposed on a party to perform it </li></ul></ul><ul><ul><li>Rests on the ground of equity that “a person shall not be allowed to enrich himself unjustly at the expense of others” </li></ul></ul>
  5. 6. Classification according to performance <ul><li>Executed Contract </li></ul><ul><ul><li>A contract where all parties to the contract have performed their obligations under the contract </li></ul></ul><ul><li>Executory Contract </li></ul><ul><ul><li>A contract where all parties to the contract have not yet performed their respective obligations under the contract </li></ul></ul><ul><li>Bilateral Contract </li></ul><ul><ul><li>A contract where both the parties in the contract are bound when the contract is made </li></ul></ul><ul><ul><li>Obligations of both parties are outstanding </li></ul></ul><ul><li>Unilateral Contract </li></ul><ul><ul><li>A contract where only one party has to fulfill his obligation at the time of formation of the contract </li></ul></ul>
  6. 7. Breach of Contracts <ul><li>Breach of contract occurs when </li></ul><ul><ul><li>Any party to the contract fails to perform his part of the contract </li></ul></ul><ul><ul><li>Any party to the contract makes it impossible for the other party to perform his obligation under the contract </li></ul></ul><ul><li>Breach of contract may occur in two ways – </li></ul><ul><ul><li>Anticipatory Breach of Contract </li></ul></ul><ul><ul><ul><li>A party declares his intention of not performing the contract before the performance is due </li></ul></ul></ul><ul><ul><li>Actual Breach of Contract </li></ul></ul><ul><ul><ul><li>On Due Date of Performance </li></ul></ul></ul><ul><ul><ul><li>During the Course of Performance </li></ul></ul></ul>
  7. 8. Rescission of the Contract <ul><li>In case of breach of contract by one party, the other party may rescind the contract </li></ul><ul><li>The aggrieved party may sit quietly or take legal action </li></ul><ul><li>Filing a suit for rescission of the contract necessary if the aggrieved party intends to sue the guilty party for damages </li></ul>
  8. 9. What are Damages <ul><li>Damages are monetary compensation allowed to the injured party for the loss suffered by him as a result of the breach of contract. </li></ul><ul><li>It is compensation, not punishment </li></ul><ul><li>Tries to put the injured party into the position in which he would have been had there been performance and not breach. </li></ul>
  9. 10. Different Kinds of Damages <ul><li>Ordinary damages </li></ul><ul><li>Special damages </li></ul><ul><li>Exemplary damages </li></ul><ul><li>Nominal damages </li></ul>
  10. 11. Ordinary damages <ul><li>AKA General or Compensatory </li></ul><ul><li>The injured party can always recover ordinary damages from the guilty </li></ul><ul><li>“ direct or proximate consequences” of the breach of contract </li></ul><ul><li>“ remote or indirect losses” are not considered </li></ul><ul><li>Examples </li></ul><ul><ul><li>Hadley vs. Baxendale </li></ul></ul><ul><ul><li>Inability to repay debt on time </li></ul></ul><ul><ul><li>Inability to supply goods </li></ul></ul>
  11. 12. Sale and Purchase <ul><li>Damages is the difference between the contract price and market price </li></ul><ul><li>Else, market price of nearest substitute </li></ul><ul><li>Else, price at point of purchase + conveyance charges + normal profit </li></ul><ul><li>In case of instalments market price on the day of the instalments are considered </li></ul><ul><li>Examples </li></ul><ul><ul><li>Contract price of rice=Rs 500; Market price=Rs 550; No: of bags decided = 5 </li></ul></ul><ul><ul><li>Damages = (550-500) * 5 = Rs 250 </li></ul></ul><ul><ul><li>Contract price of bike = Rs 60,000; Actual market price received = Rs 52,000 </li></ul></ul><ul><ul><li>Damages = 60000-52000 = Rs 8000 </li></ul></ul>
  12. 13. Special Damages <ul><li>Covers remote losses, which are not natural </li></ul><ul><li>Cannot be claimed as a matter of right </li></ul><ul><li>Can only be claimed if the circumstances were brought to the notice of the other party at the time of entering the contract </li></ul><ul><li>Example </li></ul><ul><ul><li>Contract price (between A and B) for 1 ton iron = Rs 800 </li></ul></ul><ul><ul><li>Contract price (between B and C) for 1 ton iron = Rs 1000 </li></ul></ul><ul><ul><li>Market price = Rs 900 </li></ul></ul><ul><ul><li>Total tons = 100 </li></ul></ul><ul><ul><li>Damages = (1000-800) * 100 = Rs 20000 </li></ul></ul><ul><ul><li>Contract between ‘A’ and ‘B’ to build a house to rent it to ‘C’ </li></ul></ul><ul><ul><ul><li>If house is not built as per agreement then </li></ul></ul></ul><ul><ul><ul><li>Damages = cost of rebuilding incurred by ‘A’ + rent lost by ‘A’ + any compensation paid to ‘C’ </li></ul></ul></ul>
  13. 14. Exemplary or Vindictive Damages <ul><li>Awarded as punishment </li></ul><ul><li>Not as a compensation </li></ul><ul><li>These damages can be claimed only in 2 cases </li></ul><ul><ul><li>Breach of contract to marry </li></ul></ul><ul><ul><ul><li>Depends on the extent of injury of feelings, loss of reputation, marriage prospects </li></ul></ul></ul><ul><ul><li>Dishonour of a cheque by a banker when there are sufficient funds to the credit of the customer </li></ul></ul><ul><ul><ul><li>Smaller the cheque, greater the damages </li></ul></ul></ul><ul><ul><ul><li>Depends on status of the party </li></ul></ul></ul>
  14. 15. Nominal Damages <ul><li>Neither compensation nor punishment </li></ul><ul><li>Upholds the rights and obligations </li></ul><ul><li>Awarded when the injured party has not suffered any real damage </li></ul><ul><li>Amounts may be just Rs. 1 or 2 </li></ul><ul><li>Example </li></ul><ul><ul><li>When market price and contract price are equal </li></ul></ul>
  15. 16. Duty To Mitigate Damage Suffered <ul><li>It is a duty of injured party to mitigate damage suffered because of breach of contact by the other party </li></ul><ul><li>Injured party can not recover any part of damage, which happened because of his negligence to mitigation </li></ul><ul><li>Can be proved by the defendant that </li></ul><ul><ul><li>the plaintiff has failed in his duty of mitigation </li></ul></ul><ul><ul><li>The plaintiff is free from the burden of proving that he tried to mitigate the loss </li></ul></ul>
  16. 17. Illustrations <ul><li>A servant is dismissed, even though wrongfully, it is his duty to mitigate the damages by seeking another job. </li></ul><ul><ul><li>He can recover only nominal damages if refuses another job </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><li>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. </li></ul><ul><ul><li>He will be entitled only to a refund of his advance because he had failed in his duty to mitigate the damage </li></ul></ul>
  17. 18. Liquidated Damages And Penalty <ul><li>Liquidity Damages </li></ul><ul><ul><li>A sum fixed up in the advance, which is a fair and genuine pre-estimate of the probable loss </li></ul></ul><ul><li>Penalty </li></ul><ul><ul><li>A 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 </li></ul></ul><ul><li>According to the Act, the Courts are not bound to treat the sum mentioned in contract as the sum payable for damages </li></ul><ul><li>And the mentioned sum is the maximum limit of liability in case of breach </li></ul><ul><li>If according to the contract Rs. 1000 is fine for delaying the supply then, the compensation amount claimed can not exceed Rs. 1000 </li></ul>
  18. 19. Cost Of Suit <ul><li>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 </li></ul><ul><li>This amount is other than the compensation for damages </li></ul><ul><li>The cost of suit for damages is decided by the Court </li></ul>
  19. 20. Summary Of The Rules Regarding The Measure Of Damages <ul><li>Damages awarded to the aggrieved party is the compensation for the loss and not for the punishment of guilty party </li></ul><ul><li>The injured party is to be placed in the same position, with the help of money, as if the contract had been performed </li></ul><ul><li>The aggrieved party can recover when the loss arising naturally in the usual course of things after breaching </li></ul><ul><li>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 </li></ul>
  20. 21. Summary Of The Rules (contd.) <ul><li>The injured party can recover the damages irrespective of the difficulties to assess them </li></ul><ul><li>Nominal damages are awarded in case of no real loss </li></ul><ul><li>The Court will allow only reasonable compensation to cover the actual loss even in case of ‘Liquidated Damages and Penalty’ </li></ul><ul><li>Exemplary damages can not be awarded except for </li></ul><ul><ul><li>Breach of a contract to marry </li></ul></ul><ul><ul><li>Dishonour of a cheque by a banker even if there are sufficient funds </li></ul></ul><ul><li>Duty of injured party to minimise the damage suffered </li></ul><ul><li>The injured party is entitled to get the cost of suit </li></ul>
  21. 22. Suit upon Quantum Meruit <ul><li>Quantum Meruit: “as much as is earned” or “in proportion to the work done” </li></ul><ul><li>Usual causes are violation of contractual terms by a party after part performance, or the contract is discovered void </li></ul><ul><li>Aggrieved party may file suit and claim payment in proportion to work done or goods supplied </li></ul>
  22. 23. Quantum Meruit due to default of defendant <ul><li>The contract has been discharged due to default of defendant </li></ul><ul><ul><li>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). </li></ul></ul><ul><ul><li>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. </li></ul></ul><ul><li>The claim is in addition to that for damages for breach of contract </li></ul>
  23. 24. Quantum Meruit due to contract being void <ul><ul><li>(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. ). </li></ul></ul><ul><ul><li>(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’. </li></ul></ul>
  24. 25. Quantum Meruit : Non gratuitous act leading to benefit <ul><li>When goods/services or both are provided without intention of gratuity </li></ul><ul><li>And the benefits of these are enjoyed by another party </li></ul><ul><ul><li>(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. </li></ul></ul><ul><ul><li>(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). </li></ul></ul>
  25. 26. Quantum Meruit : Claim by guilty party <ul><li>A party guilty of breach of contract can also sue on a quantum meruit provided: </li></ul><ul><ul><li>The contract is divisible </li></ul></ul><ul><ul><li>The other party must have enjoyed the benefit of the part, which has been performed, although he had an option of declining it. </li></ul></ul><ul><ul><li>Example: </li></ul></ul><ul><ul><ul><li>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.) </li></ul></ul></ul>
  26. 27. Suit for Specific Performance <ul><li>Specific performance: the actual carrying out of the contract as agreed. </li></ul><ul><li>Aggrieved party may file a suit, resulting in court directing the defendant to actually perform the promise </li></ul><ul><li>Such a suit may be in addition to or instead of a suit for damages </li></ul><ul><li><missing points> </li></ul><ul><li>Specific performance not granted in following: </li></ul><ul><ul><li>Where monetary compensation is adequate </li></ul></ul><ul><ul><li>Where it is not possible for the court to supervise execution of the contract </li></ul></ul><ul><ul><li>Where the contract is for personal services (in such cases “injunction” is granted instead of specific performance) </li></ul></ul>
  27. 28. Suit for Injunction <ul><li>Injunction: Order of the court restraining a person from doing a particular act </li></ul><ul><li>Mode of securing specific performance of negative terms of contract (a party can be in breach of negative terms of contract) </li></ul><ul><ul><li>(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) </li></ul></ul>
  28. 29. Another Illustration of Suit for Injunction <ul><li>(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). </li></ul>
  29. 30. <ul><li>Thank You </li></ul>