Indian Contract Act, 1872
Chapter 1: Nature of Contract
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Indian Contract Act, 1872 came into force on 1st
September, 1872.
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It applies to whole of India except the state of J & K.
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The provisions related to contract are contained
in Indian Contract Act, 1972.
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The provisions related to sale of goods were
originally contained in Indian Contract Act, 1872.
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The provisions related to sale of goods are
contained in the Sale of Goods Act, 1930.
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The Sale of Goods Act came into force on 1st
July, 1930.
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Indian Partnership Act came into force on 1st
Oct, 1932.
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The provisions related to partnership are
contained in Indian partnership Act, 1932.
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Contract
[Sec. 2(h)]: An agreement enforceable by law.
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Agreement
[sec 2(e)]: Every promise & e very set of promises forming
consideration for each other.
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Promise
[sec 2 (b)] A proposal when accepted becomes a promise.
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An agreement is an accepted proposal.
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Consideration: Quid pro quo i.e., something
in return.
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Enforceability by law Agreement which
creates legal obligation on the part of parties. (Balfour Vs. Balfour)
Essential
Elements of a Valid Contract [Section 10]
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All agreements are contracts if they are made by
the:-
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Free consent of the parties
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Competent to the contract
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For a lawful consideration &
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With a lawful object &
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Are not hereby expressly declared to be void.
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Intention to create legal relationship
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Certainty of meaning
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Possibility of performance
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Legal formalities.
Types of
Contracts
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Valid
Contract – A contract which contains all essential elements.
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Void
Contract [sec 2 (j)] – A contract which creases to be enforceable by law
becomes void when it ceases to be so enforceable. It is a contact which is valid
in the beginning but later on due to some reasons it becomes void.
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Void
Agreement [Sec 2(g)]- An agreement not enforceable by law. It is void from
the very beginning when it is made. It is void ab initio.
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Voidable
Contract [Sec 2 (i)] – A contract which is enforceable by law at the option
of one party but not at the option of other(s). Here, only one party can go to
the court of law, other party cannot go to the court of law.
v
Illegal
Agreement – An agreement the consideration of object of which is unlawful
[sec. 23]
ü All
illegal agreements are void, but all void agreements are not necessarily
illegal.
ü Collateral
transactions to an illegal agreement are void.
ü Collateral
transactions to a void agreement (not illegal) are not affected.
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Unenforceable
contract – It is one which is good in substance but due to some technical
defect such as absence in writing, signing one or more parties cannot sue upon
it.
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Unilateral
Contract – Obligation is pending on the part of one of the parties to the
contract.
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Bilateral
Contact – Obligation is pending on the part of both of the parties to the
contract.
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Executed
Contract – A contract which is completed. Where parties to the contract
have performed their respective obligations.
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Executory
contract – A contract which is to be performed in future.
Time Barred
Debt
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Indian
limitation Act, 1923 – A debt is said to be time barred on expiry of 3
years from the due date, if the amount has not been recovered and also no
action has been taken for recovery of
the amount.
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A time barred debt is not recoverable.
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A written promise to pay time barred debt &
signed by the promisor or his duly authorized agent is valid.
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A person who pay time barred debt, in ignorance
of Indian Limitation Act, 1963 (Indian Law), cannot recover it back.
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In case of appropriation of payment, here there
is an appropriation by time, payment may appropriated to the debt first in
time, whether time barred or not.
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An agreement which is not legally enforceable
but binding in honour only is invalid.
v
In commercial & Business Agreements, the
intention of parties to create legal relationship is presumed to exist.
Chapter –
2: Offer & Acceptance
Proposal [sec
2(a)]/Offer – Where one person signifies to another his willingness to
do or to abstain from doing anything with a view to obtaining the consent of
that either to such act or abstinence, he is said to make a proposal.
Acceptance [sec
2 (b)] – Where the person to whom proposal is made signifies his assent
thereto, the proposal is said to be accepted.
Legal rules
regarding offer
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Offer must be capable of creating the legal
relationship.
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Offer must be certain, definite and not vague.
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Offer may be express or implied.
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Offer must be distinguish from an invitation to
offer.
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Offer may be conditional.
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Offer may be specific or general.
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Offer must be made with a view to obtaining the
assent of the offeree.
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An offer should not contain a term of non-compliance
which may amount to acceptance.
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Offer must be communicated to the person to whom
it is made.
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Special terms to an offer must be communicated.
Types of offer
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General
Offer – An offer made to the public at large. Anyone having knowledge of
the offer can accept this offer by complying with the terms of offer.
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Specific
Offer – An offer made to a specified person. This offer can be accepted
only by the person to whom it is made
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Cross
Offers – When two persons exchange identical offer in ignorance of each
other’s offer. Two cross offers cannot made a contact.
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Counter
Offer – Qualified acceptance to the offer & counter offer amounts to
rejection of the original offer.
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Standing
/open/continuing offer – An offer which is allowed to remain open over a
period of time. Tender for supply of goods is an example of General offer &
standing offer.
Examples of
invitation to offer
Advertisement, Window display of goods by shopkeeper,
Quotations, Catalogue Price list, Advertisement in a newspaper for auction
sale, Initial public offer (IPO) of a company, Prospectus issued by an
institute.
Rules regarding
valid acceptance
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Acceptance must be absolute and unqualified.
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Mere silence is not an acceptance.
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Acceptance must be communicated.
Chapter –
3: Consideration
Consideration
[Sec 2(d)] – When at the desire of the promisor, the Promisee or any
other person has been done or abstained from doing or, does or abstains from
doing or promise to do or to abstain from doing something. Such an act or
abstinence or promise is called consideration for the promise. Technical word
“Quid pro Quo” i.e., something in return.
Legal rules
regarding consideration
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Consideration must move at the desire of the
promisor.
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Consideration may move from the Promisee or any
other person.
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Executed Consideration – Consideration which has
been given.
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Executory Consideration – Consideration which is
to be moved in future.
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Consideration may be past, present or future.
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Consideration should be real & not illusory.
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Consideration need not be adequate.
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The performance of an act what one is legally
bound to perform is not consideration for the contact.
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Consideration must not be unlawful, immoral or
opposed to the public policy. There can be a stranger to a consideration but
there cannot be a stranger to a contract.
A third party
or stranger to a contract cannot sue.
Exceptions:
1.
Trust –
Beneficiary can sue upon the contract.
2.
Family
Settlement – Other family members can sue.
3.
Marriage
contract – Female member for her marriage expenses on partition of HUF.
4.
Acknowledgement
of liability – when one admits his liability.
5.
Assignment
– Assignee can enforce upon the contract.
6.
Covenant running with land.
No
Consideration, no contract (An agreement without consideration is void).
[Section 25].
Exceptions:
1.
Agreement on account of natural love and
affection is valid if is-
(a) Written and
registered agreement (b) On account of natural love &
affection.
(c) Between parties
standing in near relation.
2.
Compensation for past voluntary services
3.
Promise to pay time barred debt:-
(a)In writing (b) Signed
4.
Agency
5.
Completed gift
6.
Charity
7.
Bailment
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An acceptance is to offer what is a lighted
match is to a train of gunpowder. [Sir William Anson]
Communication
of offer and acceptance
Communication of offer is complete when it comes to the
knowledge of the person to whom it is made (i.e., when the letter of offer
reaches to offeree).
Communication
of Acceptance is complete.
As against the
proposer – when it is put into the course of transmission to him so as to
be out of power of the acceptor to withdraw the same (when letter of Acceptance
posted).
As against the
acceptor – When it comes to the knowledge of the proposer. (i.e., when
letter of Acceptance reaches to the proposer).
Communication
of Revocation is complete
(a) As against the person who made it, when
it is put into the course of transmission to the another person so as to be out
of power of the person making it.
(b) As against the person to whom it is
made, when it reaches to him.
Other Important
Points
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A bid at an auction sale is an implied offer to
buy.
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A proposal is revoked by death or insanity of
the proposer, if the fact of insanity or death comes to the knowledge of the
acceptor before acceptance.
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An agreement to agree in future is invalid.
Meaning of
Terms
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Offeror – The person who made the offer.
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Offeree – The person to whom offer is made.
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Promisor – The person who makes the promise.
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Promisee – The person to whom promise is made.
Chapter – 4: Capacity to the Contact
Parties
competent to contract
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Major
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Sound mind
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Person not disqualified by law from contracting
Parties
incompetent to contact
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Major
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Unsound mind person
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Person disqualified by law from contracting
Age of majority is
defined u/s 3 of Indian Majority Act, 1875
Major – A person
who has completed 18 years of age.
Exceptions
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Guardian appointed by court
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Superintendent appointed – 21 years.
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A person who is usually of sound mind but
occasionally of unsound mind cannot made contract when he is of unsound mind.
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A person who is usually of unsound mind but
occasionally of sound mind may make a contract when he is of sound mind.
Unsound Mind Persons –
Drunkard, Idiot, Lunatic
Persons
disqualified by Law
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Alien enemy
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Statutory corporation
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Municipal bodies
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Sovereign states Ambassadors & Diplomatic
couriers
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Convict
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Insolvent
A contract with
incompetent person is void-ab-initio.
Position of
Minor’s Agreement
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An agreement entered into by or with a minor is
void-ab-initio [Mohiri Bibi vs.
Dharmodas Ghose] 2. Minor can be beneficiary.
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Minor cannot become a partner but he can be
admitted to the benefits of partnership with the consent of all partners.
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Minor can always plead minority.
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Ratification on attaining majority is not
allowed.
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Contract by minor’s guardian is valid if it is
within the scope of guardian’s authority and it is for the benefit of minor.
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Minor is not personally liable for necessaries
supply to him but minor’s property is liable, not only for necessary goods, but
also for necessary services. [Nash Vs.
Inman]
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Minor can be an agent but cannot be held
personally liable for breach of duty or negligence.
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A minor cannot be declared insolvent because he
is incapable of contracting.
Chapter – 5: Free Consent
Consent
[section 13] – Agreed upon same thing in the same sense – consensus
ad-idem – meeting/Identity of mind.
Free Consent
[Section 14] – A consent is said to be free if it is not caused by
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Coercion or
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Undue influence or
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Fraud or
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Misrepresentation or
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Mistake.
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Coercion
[sec 15] – Coercion is committing or threatening to commit an act forbidden
by IPC or the unlawful detaining or threatening to detain any property to the
prejudice of any person, whatever with intention of causing him to enter into
an agreement.
A threat to commit suicide
amounts to coercion.
A person to whom money has been
paid or anything delivered must repay or return it.
v
Undue
influence [sec 16] – A contact is said to be induced by undue influence
where the relation subsisting between the parties are such that one of the
parties is in a position to dominate the will of another and uses that position
of obtain an unfair advantage over the other.
A person is in a position to
dominate the will of another where he holds real or apparent authority over the
other or stands in fiduciary relation to the other.
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Fraud
[sec 17] (Intention to Deceive)-
ü The
suggestion as a fact which is not true by one who does not believes it to be
true.
ü Active
concealment of fact by one having knowledge or belief of the fact.
ü A
promise mode without any intention of performing it.
ü Any
other act fitted to deceive.
ü Any
such act or omission as to law specially declared to be fraudulent.
MERE SILENCE IS NOT A FRAUD.
Exception:
Where is the duty of person to
speak?
Where silence is equivalent to
speech.
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Misrepresentation
– Where a person asserts something which is not true though he believe it to be
true.
A contact induced by Coercion, undue
influence, fraud or misrepresentation is voidable.
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Mistake
Some other
Important Points:-
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Moral pressure is involved in case of undue
influence.
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Ignorance of law is of no excuse.
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A contract is not voidable if fraud or
misrepresentation does not induce the other party to enter into contract.
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A party cannot complain of fraudulent silence if
he has the means of discovering the truth with ordinary means.
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Coercion must be exercised against promisor or
any other person.
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An attempt to deceive is not fraud unless the
other party is actually deceived.
Chapter -
6: Lawful Consideration or Object
Section 23 –
Consideration or object is unlawful if it is:-
a)
Forbidden by law or
b)
Of such nature that if permitted, defeat the
provisions so any law or
c)
Fraudulent
d)
Involves injury to a person or property of
another (e) Immoral or opposed to the public policy
Chapter 7:
Void Agreement
Void Agreements
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Agreement without consideration
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Agreement with incompetent parties
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Uncertain agreement
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Agreement made under mutual mistake of fact.
v
Agreement with unlawful consideration or object.
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Illegal agreements
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Agreement to do an impossible act
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Wagering agreements
Collateral transactions to a wagering
agreement are valid. Speculative transactions are generally valid.
Agreements
opposed to the public policy
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Trading with Alien enemy
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Champerty
& maintenance
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Stifling prosecution
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Interference with the course of justice
v
Marriage brokerage contracts
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Interest against obligation
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Sale of public office
v
Agreement for creation of monopolies
v
Agreement in restraint of trade
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Agreement in restraint of marriage
v
Agreement in restraint of legal proceeding
Wagering
Agreement – It is an agreement involving payment of a s sum of money
upon the determination of uncertain event.
Other
Importance points
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Compromise of public offence is illegal.
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Maintenance – Promotion of litigation in which
one has no interest.
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Champerty
– It is a bargain whereby one party agrees to assist another in recovering
property, with a view to sharing the profits of litigation.
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All agreements on account of champerty and
maintenance are neither void nor valid. Some of them may be void, some of them
are valid.
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An agreement which provides for a reference to
arbitration instead of court of law is valid even if it is in restraint of
legal proceeding.
Chapter -8:
Performance of Contract.
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Where a contract involves the exercise of
personal skill and diligence, it must be performed by the promisor himself.
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In case of death of promisor, the liability of
legal representative is limited to the value of the property they inherited
from the deceased.
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If all of the joint promisers dies, their legal
representatives are bound to perform the promise jointly.
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Succession – Both burden & benefits are
transferred.
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Assignment – Only benefits are transferred, not
the liability there upon.
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Reciprocal Promises [Sec 2(f)] – When a contract
consists a two promises, one being consideration for the other such promises
are called reciprocal promises.
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If debt to be discharged is not indicated by the
Debtor, then creditor may apply it, if creditor does not appropriate it, it
will be applied in discharge of debt in order of time, whether time barred or
not.
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Novation
– Old contract is cancelled &
new contract is formed. Parties may or may not change.
v
Recession
– Old contract is cancelled, no new contract is formed.
v
Alternation
– Changing in the terms of original contract, parties must remain same.
v
Remission
– To remit or waive off the performance by promise.
v
In case of voidable contract, if aggrieved party
rescinds the contact, it must return the benefit received there under.
v
Void
Contract/Agreement – Either restore back the advantage received or pay compensation
for it.
Discharge of
contract by
v
Actual or attempted performance.
v
Mutual agreement – Novation, Alternation,
Remission, Recession.
v
Impossibility of performance.
v
Lapse of time e.g. Time barred debt.
v
Operation of law such as death or insolvency.
v
Actual or anticipatory Breach.
Where the
performance of promise by one party depends upon the prior performance of
promise by the other party, such promises are mutual & dependent.
Chapter – 9: Breach of Contract
Actual Breach
– Breach of contract on the due date of performance or during the performance.
Anticipatory
Breach – Breach of contract before time of performance has arrived
i.e., before due date of performance.
Damages in case
of Breach
v
Ordinary
damages – Compensation for any loss or damage which arise naturally in the
normal course of event of Breach.
v
Special
Damages – It cannot be recovered as a matter of right. These can be
recovered only if the notice of special circumstances is given.
v
Vindictive
damages/Exemplary Damages – For Breach of promise to marry or for wrongful
dishonor by banker of his customer cheque.
v
Nominal
Damages – Where plaintiff proved that there is breach of contract but he
has not suffered any real damage. These may be a single rupee or even 10 paisa.
These are awarded to maintain the right to decree in the court.
v
Remote
Damage – Indirect loss from breach of contract. Remote Damages are not
recoverable.
Damages for
deterioration coursed due to delay Deterioration
v
Not only implies physical damages to goods but
also loss of special opportunity for sale damages can be recovered from carrier
even without notice.
Calculation of
Damage
Breach by buyer =>Damage = Contact
Price – Market price on date of Breach.
Breach by seller =>Damage = Market
price on date of Breach – Contract price.
Remedies for
Breach of Contact
v
Right to rescind the contract
v
Right to claim damages
v
Right to continue the contract
v
Suit upon Quantum Meruit (as much as is earned
or according to the quality of work done)
v
Suit for specific performance
v
Suit for injunction
v
Injunction
order is issued by the court when a party do what he promised not to do.
Other points:-
v
A contract is not frustrated by commercial
impossibility
v
In case of anticipatory breach, the aggrieved
party may treat the contract
ü As
discharged and bring an immediate action for damages
ü As
operative and wait till the time of performance arrives.
v
A party entitled to rescind the contract, loses
the remedy where
ü He
has ratified the contract.
ü The
third party acquired the right in good faith
ü Contract
is not separable and recession is sought of one part only.
Chapter – 10: Contingent & Quasi
Contact
Contingent Contract
v
Contingent Contract [Sec 31] – It is a contract to do or not to do something, if
some event collateral to such contract, does or does not happens.
v
Contract of Insurance is a contingent contract.
v
When the contingent event is the part of
contract, the contract is conditional one, & where it is collateral to the
contract, it is a contingent contract.
The basis of “Quasi contractual relations” is the
prevention of unjust enrichment at the expense of others.
Quasi Contract
v
Right in
rem – Right against the entire world.
v
Right in
personam – Right against a particular person.
v
Quasi contractual right is a right in personam.
v
Quasi contracts are implied by law.
Types of quasi
contracts
v
Claim of necessaries supplied to an incompetent
person, supplier can recover the price from the property of such person.
v
Right to recover money paid for another.
v
Obligation of a person enjoying the benefit of
non-gratuitous act.
v
Responsibility of finder of goods same as Bailee.
v
A person to whom money has been paid or anything
delivered under coercion or by mistake must repay or return it.
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