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Nature of Contract
The fabric of modern industrial society is woven around economic relationships. The relational integration and determination of mutual rights and obligations are dependent, to a great extent, on ex contractum terms. Contracts arising out of economic and social relationships. Such relations are either contractual or akin to a contract. The market functions on the very premise of effective functioning of contractual relationship. 2
What is a contract
A written or spoken agreement intended to be enforceable by law. An agreement enforceable by law is a contract. [Section 2(h) ]
A contract is an agreement made between two or more parties, which the law will enforce.
Contract is a method through which individuals make law for themselves by creating rights and obligation ex contractas.
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Section 10
All agreements are contracts if they are made by the free consent of the parties, competent to contract,
Classification of Contracts
On basis of Formation
Express Contract
Implied contract Quasi Contract On basis of Performance Executed Contract Executory Contract
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On basis of Validity Voidable Contracts Void agreement Void Contract Valid Contract Illegal Agreements
Elements of Offer
It must be made by one person to another person. It must be an expression of readiness or willingness to do or to abstain form doing something. It must be made with a view to obtain the consent of that other person. Terms of offer must be definite, unambiguous and certain. Offer must be communicated. Offer not to contain a term the non-compliance of which may amount to acceptance. A statement of price is not an offer.
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Types of Offer
Express Offer by words written or spoken. Implied Offer By conduct or circumstances. Specific Offer- Made to a specified or definite person. General Offer- Made to public at large
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Tenders
A Definite Offer
When tenders are invited for the supply of specified goods or services,
each tender submitted is an offer. The party inviting tender may accept any tender he chooses
thereby bringing about a contractual relationship with the person (tender) so chosen.
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Tenders
A Standing Offer Where goods or services are required continuously over a certain period, a trader may invite tenders as a standing offer which is a continuing offer. The effect is that as and when goods or services are required, an order is placed with the person whose tender has been accepted. However, at each such time a distinct contract is made.
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Consideration
Consideration is some kind of an exchange between the parties to an agreement. Consideration is the price for which the promise of the other is bought and the promise thus given for value is enforceable. Pollock A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. 18
Definition
When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing something such act or abstinence or promise is called a consideration. [Section 2(d)]
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Capacity to contract
Every person is competent to contract who Is of the age of majority according to the law to
which he is subject.
Is of sound mind.
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Free Consent
Consent means an act of approval or assenting to an offer. Two or more persons are said to consent when they agree upon the same thing in the same sense. Consent involves ad idem i.e. identity of mind about the subject matter of contract. A mere consent is not enough, it should be free and voluntary. Not to be caused by any vitiating factors given u/s 14.
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Section 14
Consent is said to be free when it is not caused by a) Coercion. b) Undue influence. c) Fraud. d) Misrepresentation. e) Mistake.
Presumption of Domination
Master and Servant, Parent and Child, ITO and the Assessee, Trustee and Beneficiary, Spiritual Guru and Disciple, Solicitor and Client,
Trading with enemy. Agreements interfering with the administration of justice a) Interference with justice using improper influence over judges or officers. b) Stifling Prosecution by way of an understanding not to prosecute an offender. c) Maintenance and Champerty financial or other assistance to bring or defend a lawsuit when the person has no legal interest. Trafficking in public offices or titles. 28 Agreement creating interest opposed to duty.
iii) the restriction must be for the time so long as the buyer or any person, carries on a like business in the specified local limits;
iv) the specified local limit must be reasonable having regard to the nature of the business.
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Trade Combination
Trade combination formed to regulate the business or to fix prices are not void,
but trade combinations to create monopoly or cartel, and which are against the public interest are void.
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Employment Contracts A clause to serve the employer for a stipulated period is a valid clause if reasonable. A clause preventing employee from accepting similar engagement during the employment is also valid. A clause preventing the employee from accepting a similar engagement after the termination a) if the restraint is to protect an employer against making use of trade secret it is valid. b) if the restraint is intended to serve any other purpose, like to avoid competition, it is not valid. 32
Performance of Contract
Performance of a contract is a mode of discharge of the contract.
Performance of contract takes place when the parties to the contract fulfill their respective obligations under the contract. The parties to a contract must either perform or offer to perform their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law.[Sec 37] 33
Legal representatives.
Third person. (S 41)
Joint promisors.
Promisee Legal Representative Third Party Joint promisee
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Discharge of Contract
A contract is said to be discharged when it ceases to operate.
Alteration
Remission
Waiver
Merger
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By operation of Law
By death.
By merger.
By insolvency.
By Impossibility of Performance
Impossibility existing at the time of agreement Known to the parties the agreement is void ab initio. Unknown to the parties the agreement is void on the ground of mutual mistake. Impossibility arising subsequent to the formation
of the contract.
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By Supervening Impossibility
Destruction of subject matter of contract
By breach of contract
Actual Breach a) On the due date of performance. b) During the course of performance of contract. i) Express Repudiation.
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he is not only discharged from his liabilities but also he is entitled to claim compensation for damages which he might have sustained due to non performance of the contract. [Section 39]
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party at fault
but to make good the financial loss suffered by the
Quantum Meruit
When an agreement is discovered to be void. [Sec 65] When something is done without any intention to do gratuitously. [Sec 70] When there is an express or implied contract to render service but no agreement as to remuneration. When the completion of the contract has been prevented by the act of the other party to the contract. When a contract is divisible. When an indivisible contract is completely performed but badly.
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Specific Performance
The remedy of Specific Performance is in the nature of equitable remedies based on the principles of equities. Among the remedies are specific performance, injunction, rectification and cancellation of instruments and rescission of contract. In the discretion of the court, specific performance may be enforced: where there is no standard for ascertaining the actual damage caused by the non-performance; or where compensation in money for the non-performance would not afford adequate relief.
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Quasi Contracts
Sometime a person may receive a benefit which the law regards another person as better entitled, or for which the law considers he should pay to the other person, even though there is no contract between the parties. Such relationships are called quasi contracts. Because although there is no contract or agreement between the parties, they are put on the same pedestal as though there was a contract between them. This is based on the principles of equity.
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Contracts of Indemnity
In a contract of indemnity one party promises to compensate the other party against loss suffered by the latter. Section 125 confines itself to losses occasioned due to an act of promisor or due to act of any other persons. 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 is called a contract of indemnity. [Sec 124]
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If a person who is interested in the payment of money which another is bound to pay and pays it, he is entitled to be indemnified. [Sec 69] The surety has a rights to claim indemnity from the principal debtor for sums he has rightfully paid towards the guarantee. [Sec 145] The principal is liable to indemnify the agent for all amount paid by him during the exercise of his authority. [Sec 222] 51
Contract of Guarantee
A contract of guarantee is essentially a contract
Kinds of Guarantees
Specific guarantee extends to a specific transaction or a single debt.
The liability of surety comes to an end when the guaranteed debt is duly discharged.
Continuing guarantee extends to a series of transaction. This kind of guarantee is intended to cover a number of transactions over a period of time.
Whether the guarantee is continuing guarantee or not is a question of intention, subject matter & circumstance.
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Discharge of Surety
By Revocation of Guarantee Discharge by conduct of creditor
By impairing surety's remedy Loss of security by the creditor Discharge of surety by invalidation of contract Guarantee obtained by misrepresentatio
Finder of Goods
A person who finds goods belonging to another and takes them into his custody, is subject to the same responsibilities as a bailee. [Sec 71]
Right of sale.
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Contract of Agency
An agent is a person employed to do any act for another, or to represent another, in dealings with third persons. The person for whom such act is done or who is so represented, is called the principal." Whatever the principal can do himself, he may get the same done through an agent,; and
Creation of Agency
By Agreement - Express Agreement. - Implied Agreement. Implied agency includes the following Agency by Estoppel. Agency by holding out. Agency by necessity Agent acceding his authority in an emergency. A person entrusted with another's property. Husband and Wife. Agency by ratification.
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Duties of Agents
To carry out the work according to the directions of principal.
To carry out the work with reasonable care, skill and diligence.
To render proper accounts.
Not to use information obtained in the course of agency against the principal.
Not to make secret profit. Not to set up an adverse title. Not to put himself in a position where his interest and duty conflict. Not to delegate authority.
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Rights of Agents
Right of retainer.
Right of indemnification.
Right of compensation.
Delegation of Authority
Delegatus non potest delegar A Sub-agent is a person employed by and acting under the control of the original agent and the business of the agency. [Section 191] A agent may appoint a sub-agent if There is a custom of trade. The nature of work is such that sub-agent is necessary. Where the principal is aware of the intention of the agent to appoint a sub-agent. Where unforeseen emergencies arise rendering. Where the act to be done is purely ministerial. Where the principal permits appointment of sub-agent. 68
Undisclosed principal
The position of Principal contracting party may sue either the principal or the agent or both. The principal may also require the performance of contract.
The position of agent as between the principal and agent, the agent has all the rights of an agent as against the principal; but as regards the third party, he is personally liable on the contract.
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The position of third parties the third party may elect to sue either the principal or the agent or both. If the principal discloses himself before the contract is completed, the other party may refuse to fulfill the contract on the ground of mistake of identity of party. The third party can also claim a right of set-off against the agent.
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