Business Law Contracts (1)

7/27/2019 Business Law Contracts (1)

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UNIT-2

BUSINESS LAW CONTRACTS


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GROUP MEMBERS:SUDHAKAR 12031EIB05

PRATHEEK 12031EIB06

PRAPHULLA 12031EIB09HARITHA 12031EIB23

RAMANA 12031EIB24

SHIVA LEELA 12031EIB25

Group Name: Avengers


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Sanctity of Contracts


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Sanctity of Contracts

What is contract?

Mainly enforceable by sovereign state.

Case of ONGCs demands in respect of Cairns.


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Principles of Governing the

formation


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Principles of Governing the formation

Agreement

Consideration

Free consent Contractual capacity

Legality

Form(written,oral etc) Legal relations


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Types

Depending on number of obligations:

Unilateral

Bilateral

Cases: Advertisement


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Performance and Termination of

Contracts


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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


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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.


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B. Discharge by mutual consent or agreement:

The termination of contract by further agreementor consent.

Ways to do so:

1. Novation

2. Rescission

3. Alteration

4. Remission5. Waiver

6. Merger


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C. By Impossibility of Performance

(a) Inherent impossibility

(i) Known to the parties

(ii) Unknown to the parties

(b) Subsequent impossibility


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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


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Cases of Subsequent impossibility

ii) Non-existence or non-occurrence of a particularstate of things

[Krell v. Henry]

A contract was to hire a flat for viewing thecoronation procession of the king.

The procession had to be cancelled on account ofkings illness.

In a suit for the recovery of the rent, it was heldthat the contract became impossible ofperformance and that the hirer need not pay therent


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(iii) By the death or disablement of the parties

(iv) Subsequent illegality

(v) Declaration of war


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2. Commercial impossibility

Example: X promised to send certain goods from

Bombay to Antwerp in September, In Augustwar broke out and shipping space was notavailable except at very high rates.

Held: The increase of freight rates did notexcuse performance


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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 beproduced because of riots and civil disturbances

in that country. Held: There was no excuse for non-performance

of the contract


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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 thecoronation and (ii) to

cruise round fleet.

Owing to the kings illness, the naval review was

cancelled, but the fleet was assembled and the boatcould have been used to cruise round the fleet.

Held: The contract was not discharged


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Effects of Supervening Impossibility

(i) Contract becomes void(ii) Compensation for the loss suffered

(iii) Restore the benefit


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D. By Operation of Law

1. By death

2. By insolvency

3. By merger4. By the unauthorised alteration of terms of a

written document


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E. By lapse of time

F. By breach

(i) Actual Breach of Contract

(ii) Anticipatory Breach of Contract


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Contractual Remedies


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What is a Remedy?

A remedy is the means given by law for the

enforcement of a right.


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Types of Remedies:

Rescission of the contract

Suit for Damages

Suit for specific performance of the Contract Suit upon Quantum Meruit

Suit for injunction.


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Remedies for Breach of Contract

Breach of Contract

Rescission

and

Restitution

DamagesSpecific

PerformanceInjunction Quantum

Meruit

Compensatory Consequential Liquidated Punitive Nominal


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1. RECISSION

When a contract is broken by one party, the otherparty may sue to treat the contract as rescindedand 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 ona certain day. B agrees to pay the price after the

receipt of the goods. A does not supply thegoods. B is discharged from liability to pay theprice.


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The Court may grant Rescission, if

Where the contract is voidable by the plaintiff

Where the contract is unlawful for causes not apparenton its face and the defendant is more to blame thanthe plaintiff.


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2. DAMAGES

Damages are the monetary compensation allowed tothe injured party by the court for the loss of injurysuffered 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


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Ordinary Damages

When a contract has been broken, the injuredparty can recover from the other party suchdamages as naturally and directly arose in theusual course of things from the breach. These

damages are known as ordinary damages.

E.g.: A contracts to sell and deliver 50 quintals of Farmwheat 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 Arefuses to sell the Wheat. B can claim damages at the rateof Rs.25 per quintal.


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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..


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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)

i l


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Nominal Damages:

These are awarded where there is technical

violation of a legal right but the aggrievedparty 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


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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

i


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3. Quantum Meruit

It means AS MUCH AS EARNED

A right to sue on a quantum meruit arises wherea contract, partly performed by one party, hasbecome discharged by the breach of the contractby the other party.

The right is founded not on the original contractwhich is discharged or is void but on an impliedpromise by the other party to pay for what hasbeen done.

f f


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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 isa direct by the court for Specific Performance

of the contract at the suit of the party not in

breach.

C hi h f ll d S ifi f


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Cases which fall under Specific Performance

(A)When the act agreed to be done is suchthat compensation in money for its non-performance is not an adequate relief.

(B) When there exists no standard forascertaining the actual damage caused by thenon-performance of the act agreed to bedone.

(C) When it is probable that the compensationin money cannot be got for the non-performance of the act agreed to be done.

Specific performance will not be granted


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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 oftheir trust

The contract is of a personal nature E.g: contractto marry

The contract is made by a company in excess ofits powers as laid down in its M.O.A The court cannot supervise its carrying out E.G.

Building contracts

5 I j i


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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 courtis known as an Injunction.

e.g. Demanding courts stay order.


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Special Contracts


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CONTRACT OF INDEMNITY



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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 goodcalled as the indemnified (promisee).


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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.


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The liability of the indemnifier to the

indemnified is primary and independent.

This contract is for the reimbursement

(compensation) of loss.



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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 inorder to protect the promisee against

anticipated loss.

Eg: Insurance Agreement


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Contract of Guarantee

Meaning and Essentials


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Meaning and Essentials

Acc to Sec 126Its 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


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Features of Guarantee

Concurrence

A person cannot become the surety without theconsent of the principal debtor.

Primary liability in some person

No liability no contract of guarantee. For e.g. TimeBarred debt

Consideration Writing not necessary

Capacity to contract should be valid

Types of Guarantee (Sec 129)


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Specific, Simple or Limited Guarantee: it extends to a

single transaction.

For e.g.: A guarantees B that C would make payment ofRs.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 oftransactions. For e.g. A guarantees B for all the

payments that the C would make to B for the delivery

of shoes.



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Revocation of Continuing Guarantee:

By Notice of Revocation (Sec 130)

By Death of Surety. (Sec 131)

Nature and Extent of Suretys Liability


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Nature and Extent of Surety s 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


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Rights of Surety

RIGHTS AGAINST CREDITOR:

To insist the creditor to sue the principal debtor, but

surety will have to indemnify the creditor for anyexpenses 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.


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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


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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 cosureties.

DISCHARGE OF SURETY


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DISCHARGE OF SURETY

Guarantee obtained by misrepresentation

Guarantee obtained by concealment.


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Agency and Bailment

INDIAN CONTRACT LAW 1872


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INDIAN CONTRACT LAW 1872

Section 182 :

Features :


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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:


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Classification:

Creation of Agency:


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Creation of Agency:

1) By Express Authority

2) By Implied Authority

By estoppel

By holding out

By necessity

3) By Ratification

4) By Operation of Law

RIGHTS: DUTIES:


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RIGHTS: DUTIES:

Right to retainer Right to receive

remuneration

Right of lien

Right to beindemnified againstconsequences of actsdone in good faith

Right to receivecompensation

To act according to directionsor 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:


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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


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BAILMENT: Indian Contract Act

Section 148:

KINDS:


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KINDS:

BASED ON BENEFITS:

1.Bailor Benefit

2.Bailee Benefit

3.Mutual Benefit

BASED ON REWARD:

1.Gratuitous bailment

2.Non-gratuitous bailment

BAILEE:


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BAILEE:

DUTIES: Take care of goods

No unauthorized use ofgoods

Not to mix with his owngoods

To return goods

Not doing any act

against the terms ofbailment

Returning any profit

RIGHTS:

To compensate if the bailed

good is damaged or lost

To receive necessary

expensesDelivary of goods to one of

the joint oweners

Against third parties

BAILOR:


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O

DUTIES:

To disclose faults

in goods bailed

To repay the

necessary

expenses

To indemnify the

bailee

RIGHTS: Right of indemnity for

losses due to negligence

by bailee

Compensation forunauthorized use

Compensation when

the bailee mixes

Right to takeback the

goods

TERMINATION:


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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


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Partnership

INTRODUCTION


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The process of registering a company is know

a incorporation.

There are different kinds of legal structures

among which we can choose our business tobe. They are:

A sole proprietorship

A partnership firm

A private & public limited company.

Partnership agreement


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p g

When starting a partnership business thefollowing terms should be contained in thepartnership 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


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yp p

Active Partners

Dormant Partners

Nominal Partners

Minor as a partner

Features of Partnership business


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p

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


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g p

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


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Unlimited liability

Uncertain life

Lack of harmony

Limited capital

No transferability of share

Partnership


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Business suitable for partnership legal

structure

How to form partnership deeds and start a

partnership firm?


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Business Law Contracts (1)