Introduction to Contract

NLSIU

Classical contract theory: 3 threadsContract is a bargain

Will of parties [consensus ad idem-agreement]

Freedom of Contract is paramount

Development of Contract Law: PrinciplesLaw of obligations [vinculum juris]

Moral obligations contractual obligationsLaw of unjust enrichment

Law of restitution [Injurious reliance]

Courts in EnglandWrit of performance

Writ of debtWrit of covenant writ of deceit

Quid pro quo

Pacta sunt servanda

Freedom of contract ?

Contract as an instrument of free bargaining between parties on the basis of equality

Freedom: Need ?To determine the primary obligations of parties

To understand the inequality of bargaining power

To understand public utilities

Means of contractFormal and Informal contractsBilateral and Unilateral contracts

Contractual terms: Formation PerformanceContract may be oral or written. Representation

ExpressImpliedIntermediate termsTerms/ Expressed in writing

Conditions/warranties Implied by Statute terms by customary usage Standard form of contract

Object of Law of contractTo avoid litigation

To establish set of rules for compliance

To penalize defaulters

Point of LegalityValid ContractVoid Agreements : sec. 2(g)Voidable contracts:Illegal contracts

Law of torts and ContractMisfeasanceMalfeasanceNonfeasance

Would an action stand in Tort when the Contract is silentBlackpool and Fylde Aero Club v Black pool Borough Council 1990 WLR 1195 Reid v Rush Tompkin Group 1990: Car accident case.Winterbottom v Wright 1842 152 Eng Rep 402

Digital contracts

IssuesConceptual framework Rules governing e-contractsI T 2000Digital signatureE-auction

Issues in E-contractCalifornia Software Inc v Reliability Research Inc, 1356 [C D Cal, 1986]Beta Computers Ltd v Adobe Systems Ltd 1996 FSR 367TCS v State of A. PEuropean Commission and Product liability Shrink wrapClick-WrapProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir., 1996

Outsourcing ContractIssuesSections 13, 15 and 44A of the Indian Civil Procedure Code and Section 41 of the Indian Evidence Act, govern the conclusiveness and enforcement of foreign judgments in IndiaLiability of a software developer

Problems with E-contractTaxing E-commerce Copyright or Patent of software ? UK Electronic Commerce Act 2002Limitation of Digital Contracts

Indian Partnership

Essentials of Firm1. Association of two or more persons2. In pursuance of an agreement or contractRe Fisher and Sons 1912 2 KB 491: difference between Co-owners and partners 3. To combine property, labor or skill4. In a businessNew Mofussil Co v Rustomji 1936Coope v Eyre 17885. Carried on by all or any one of them on behalf of allFirm name/PropertyMiles v Clarke 1953 1 ALL ER 7796. With a View to share ProfitsDaulat Ram v Dharm Chand AIR 1934 Lah 110

Minor PartnerSec. 30(1): A person who is a minor according to the law to which he is subject may not be a partner in a firm, but with the consent of all partners for the time being, may be admitted to the benefits of partnershipA A Khan v Amer Karium AIR 1952 Mys 131Lachmi Narain v Beni Ram, AIR 1931 ALL 327Rights of minor: QuestionsTulsi das v Gangaram AIR 1925 Sund 272Satya Narain v Juggal Kishore AIR 1958 All 312]Minors liabilities sec. 30(3)(5)(7)(9)Sanyasi Charan Mandal v Asutosh Ghose 1915 42 Cal 225CIT v Vijay Kumar RajeshLiability of a minor after attaining majority

Types of partnershipPartnership at will : M O H Uduman v Ashurn AIR 1991 SC 1020: Karumuthu Thiagarajan Chettiar v Muthappa Chettiar AIR 1961 SC 1225Partnership for a fixed termParticular partnership : Limited Partnership : Partnership by Holding out Sleeping partnerNominal partnerWorking partners

Rights of a partner1. Joint ownership of partnership property2. Right to take part in the management [sec. 12]Suresh Kumar v Amrit Kumar AIR 1982 Del 131Right to Express opinion [sec. 12 c] Lord Fldon in Const v Harris 1824 said for a majority of partners to say, we do not care what one partner may say, we being the majority will do what we please is what a court of equity will not allow.Dismissal of a servantNew businessBlisset v Daniel 18533. Access accounts and act during emergencyRe Martindale ex Truman 1832

4. Right to profitMansa Ram v Tej Bhan AIR 1958 Punj 5 Delhi Veopar Mandal v IT Commissioner AIR 1967Dawood Sahib v Sheik Mohiuddin Sahib AIR 1938 5. No claim for interest of capital6. Right to indemnity sec. 13(e)Thomas v Atherton 1877

Rights of partners6. Right not to be expelled7. No new partner to be introduced: right to prevent8. No liability before joining unless with consent and expressly stated in the deed9. Right to retire: 3 ways

Nature of Liability of partnersJoint and several: sec. 25: every partner is liable jointly with all the other partners and also severally for all acts of the firm done while he is a partnerTestBenefit of the partnershipWithin the scope of authority

Malyn v John Houston 1903 1 KB 81Moreton v Harden 1825Citizens Life Assurance v Brown 1905R W Pathirana v Pathirana 1967 1 AC 233

Nature of Implied Authority1. Authority to purchase and sellBond v Gibson [1808] 2. power to recover money due to firm/ borrow money on credit: Higgins v Beauchamp 1914 2 KR 1992: 3. Authority to engage lawyers4. Authority to insure firm goods

Conditions for application of Implied authority1. Act must be done in the capacity of a partner: Gouthwaite v Duckworth [1810 104 ER 174]: 2. Act must be done on behalf of the firm and not on personal behalf3. Act must relate to activities within the scope of business4. Act must be done in the firms name

Does implied authority vary acc/ to type of partnershipLLP, Will the concept of mutual agency continue ?

Dissolution

Of partnershipof Firm

End of the termcompletion of business by death/insolvency by retirement

Dissolution of FirmWithout CourtBy AgreementCompulsory dissolutionDissolution on contingencyBy noticeBy CourtPersistent misconduct or disregard to partnership agreementUnsoundness of partnersBusiness at loss

Jurisdiction of the Courts to try dissolutionMD Hassen Hashmi v Kaberi Roy AIR 1993 Cal 70

Winding UpRight to continue businessGood willRestraint of trade

What is a proposal/offerI think I like your car and will try to buy itI saw an advertisement for the sale of your car, will you sell your car to me?I am willing to buy your car for a reasonable price. Are these Offer ?

Invitation to TreatAdvertisements: General OfferDisplay of goods for saleCarlill v Carbolic Smoke Ball Co [1893] 1 QB 256 Harvey v Facey [1893] AC 552Will you sell us Bumper Hall pen, telegraph at what pricelowest price for the pen is 100Powell v Lee [1908] 99 L Y 284MC Pherson v Appanna [AIR 1951 SC 184] wont accept less than 10,000.

Modes of OfferTime tableTenders and Auctions [Harris v Nickerson]Restaurant menu cardATM or vending machines

Offer: CommunicationGibbons v Proctor 1891 64 LTN S 594 [Reward for a criminal]Lalman Sukla v Gouri Dutt 1913ALJ 4891[Missing boys case]Tim v Hoffman 1873, 29 L T 271: cross offer is no offer

Counter OfferProposal must be made to another person

Termination of OfferAn offer can be withdrawn at any time before it is accepted.Distinction between lapse of offer and revocationNotice, Death, incapacity, lapse of time Errington v Errington [1952] Father promises to son and daughter in law that if they pay mortgage amount of the property, the property would be theirs

AcceptanceAcceptance must be in toto: Mirror Image Rule Manner/mode of acceptance [sec. 7]

By an actpromiseIs Silence an acceptance ?Felthouse v Bindley 1862 11 CB 869.: Uncle tells his nephewIf I hear no more from you, the horse in mine.The nephew during an auction stated to the auctioneer to reserve the horse for his uncleSilence and thereafter a conduct of acceptance ?LIC of India v Vasireddy AIR 1984 SC 101427th Dec. 1960 filing of proposal for LICProposer died on 12th Jan 1961Can Acceptance be revoked ?

Acceptance: contdIs Communication of Acceptance essential?Acceptance through post: Mailbox ruleAdams v Lindsell [1818 1 B& Ald. 681.2/9/1817, defendants offered to sell a quantity of wool at a certain price and expected the answer by post, the letter reached the plaintiff on 5th, the same day, he posted the acceptance, which reached the defendants on 9th. The defendants waited till 7th and on 8th sold the same wool to another personIs there an acceptance ?Who can communicate the acceptance ?When is a unilateral contract accepted ?

When does the mailbox rule apply?Q. Is revocation of acceptance possible ?Henthorn v Fraser 1892Secretary signed a note giving option to purchase for 14 days at P-750, next day withdraws through post at 12-1.00 pm, claimant posts the acceptance on the same day between 3-4 pm.Which ever communication reaches first is valid

Offer and Acceptance: Where the contract is made?It determines the time of forming the contractIt stipulates the jurisdiction of the court; and It affixes the rights and obligations of parties

Is the contract complete at the instance and place of the acceptor or offeror?

Invitation to TreatAdvertisements: General OfferDisplay of goods for saleCarlill v Carbolic Smoke Ball Co [1893] 1 QB 256 Harvey v Facey [1893] AC 552Will you sell us Bumper Hall pen, telegraph at what pricelowest price for the pen is 100Powell v Lee [1908] 99 L Y 284MC Pherson v Appanna [AIR 1951 SC 184] wont accept less than 10,000.

Modes of OfferTime tableTenders and Auctions [Harris v Nickerson]Restaurant menu cardATM or vending machines

Termination of OfferAn offer can be withdrawn at any time before it is accepted.Distinction between lapse of offer and revocationNotice, Death, incapacity, lapse of time Errington v Errington [1952] Father promises to son and daughter in law that if they pay mortgage amount of the property, the property would be theirs

AcceptanceAcceptance must be in toto: Mirror Image Rule Manner/mode of acceptance [sec. 7]

By an actpromiseIs Silence an acceptance ?Felthouse v Bindley 1862 11 CB 869.: Uncle tells his nephewIf I hear no more from you, the horse in mine.The nephew during an auction stated to the auctioneer to reserve the horse for his uncleSilence and thereafter a conduct of acceptance ?LIC of India v Vasireddy AIR 1984 SC 101427th Dec. 1960 filing of proposal for LICProposer died on 12th Jan 1961Can Acceptance be revoked ?

Acceptance: contdIs Communication of Acceptance essential?Acceptance through post: Mailbox ruleAdams v Lindsell [1818 1 B& Ald. 681.2/9/1817, defendants offered to sell a quantity of wool at a certain price and expected the answer by post, the letter reached the plaintiff on 5th, the same day, he posted the acceptance, which reached the defendants on 9th. The defendants waited till 7th and on 8th sold the same wool to another personIs there an acceptance ?Who can communicate the acceptance ?When is a unilateral contract accepted ?

When does the mailbox rule apply?Q. Is revocation of acceptance possible ?Henthorn v Fraser 1892Secretary signed a note giving option to purchase for 14 days at P-750, next day withdraws through post at 12-1.00 pm, claimant posts the acceptance on the same day between 3-4 pm.Which ever communication reaches first is valid

Offer and Acceptance: Where the contract is made?It determines the time of forming the contractIt stipulates the jurisdiction of the court; and It affixes the rights and obligations of parties

Is the contract complete at the instance and place of the acceptor or offeror?

Chapter-3: Capacity to ContractTwo kind of personsNaturalLegal or juristic personNatural Person

Latent incapacity patent incapacity[infancy, unsoundness, lunacy] [Bcos of Status: insolvency, alien enemy, Married]

Legal person

Ultra vireswinding up any other Acts of sovereign, Corporate and companies

Liability of Minors in ContractSec. 68: if a person, incapable of entering into a contract is supplied with necessaries in life, the person who supplies is entitled to be reimbursedDoyle v White City Stadium 1935 1 KB 110,

Insanity/lunacyInder Singh v Parmeshardhni Singh AIR 1957 Pat. 49Mathews v Baxter [1873, L R 8 Ex. 132]

Other IncapacitiesPolitical StatusAlien enemyForeign sovereigns and ambassadors Mighell v Sultan of Johore [1894, 1 QB 149] [Also see sec. 86 of CPC which provides that in case of suit against a foreign sovereign, the consent of the Central Govt is required] CorporationAshbury Railways Carriage Co. V Riche 1875, 7 HL 653. [an agreement for purchase of railways which was not mentioned in the MOA was held ultra vires]Q. Does Ultra vires means void contract ? Are third parties protected from such ultra vires acts ?

Other IncapacitiesMarried StatusProfessional status: can an advocate sue in contract, his client for fee ?

Chapter 4: ConsiderationSec. 10 requires Lawful consideration as an essential factor for giving enforceability to an agreement.Sec. 25 an agreement without consideration is void [nudum pactum]Sec. 23 and 24 deal with circumstances in which the consideration will be treated unlawful

What is considerationMoney [need not be adequate]An act, abstinence or promiseMust be real [White v Bluett] Performance of a legal duty is no consideration

Why Consideration ?Consideration only at the desire of the promisorDurga Prasad v Baldeo [Building a market place at the order of the Collector, Defendants, a tenant made a promise to pay, later refused, was held not liable to pay]Consideration by the promisee or any other personChinnaya v Ramaya [old lady granted an estate to the daughter with a direction that the daughter should pay an annuity of Rs 653 to the ladys brother. On the same day the daughter executed a promise to pay to the mothers brother Rs 653. She failed and claimed that the brother had not given any consideration. Held: consideration by the mother is enough consideration]Consideration may be Past, Present or FuturePrivity of contractA person may not give any consideration, but is a party to the contract may enforce the contractA stranger to a contract cannot sue : Suppose A and B enter into a contract for the benefit of C. The agreement between and A and B cannot be enforced by C.Tweddle v Atksinson : two father entered into an agreement to pay a new couple money on their marriage. The couple cannot sue for enforcement of the contract between the fathers.

ExceptionsLaw of Trust/ Insurance Klause Mittelbachert v East India Hotels [pilot, head injuries during a dive at the swimming pool, contract between Lufthansa and hotel Oberoi, can the pilot claim damages, though the consideration was not moving from him ?]Conduct, Acknowledgment or AdmissionNarayani Devi v Tagore Commercial Corporation [If the defendants start the payment and then withdraws]Provision for marriage expenses or maintenance under family arrangement/Veeramma v Appayya [daughter agreed to take care of the father for which the father promised to convey property to her. Later when the father refused, the daughter sued successfully.Sundaraja Aiyangar v Lakshmiammal [partition deed between brothers to provide for marriage expenses of the sister, is enforceable by the sister]Subscription for a charitable purposeKedar Nath v Gorie Mahomed

Doctrine of Promissory EstoppelCentral London Property trust Ltd V High Trees House Ltd 1947 KB 130.Rule in Pinnel Case [promise to pay less than the due amount] D&C Builders v Rees 1966 2 QB 617M P Sugar Mills v State of U PAIR 1979 SC 621Forbearance to sue is good consideration

When Agreement without consideration is validNatural love and affectionCompensation for past voluntary servicesPromise to pay a time barred debtCreation of Agency does not require consideration

Free ConsentCoercion: committing or threatening to commit an act forbidden by IPCRanganayakamma v Alwar Setti [Adoption of son by a widow]Chikkan Ammiraju v Chikkam Seshama [Threat to commit suicide] Economic duressB& S Contracts & Designs v Victor Green Publications Ltd 1984 ICR 419 [erecting a stand, contractor claimed labour strike and increased amount]

Undue Influence: a Specie of fraudTaking of unfair advantage [sec. 16]Misuse of influenceAbuse of trust and confidenceConnotation of improprietyClasses of undue influence

Actualpresumed undue influence

Based on proof

What constitute undue influenceRelationship of parties is such that one party is in a position to dominate the will of the other.

Real and apparent authorityfiduciary relationshipmental capacity, age, illness

The party in the dominating position uses that position to obtain an unfair advantage

Presumption of undue influence: position of dominationParent and childGuardian and wardTrustee and beneficiarySolicitor and clientDoctor and patientSpiritual adviser and disciple

The list does not include husband and wife nor does it include principal and agent, banker and customer or teacher and student

IllustrationTate v Williamson 1866 LR 2 Ch. App 55Allcard v Skinner 1887 36 Ch.d 145

Rebutting the presumption of undue influenceWhether the victim had independent and qualified advise ?Solicitors must give fair and disinterested adviseHe must ensure that the decision of his client is proper and to his benefitThe victim understood the nature and consequences of the transaction ?Disclosure of material factsWhether he was able to arrive at independent and informed decision/judgment.Objective and conduct of parties

FraudFalse statement of factsMere silence is no fraudDuty to speak by lawP Sarojam v LIC [aliments were not disclosed in the form]Rajinder Singh v Pomilla [premartial status of a party was a material fact]Active concealmentShri Krishna v Kurukshetra University

Misrepresentation

FraudulentNegligentInnocent

Rescindclaim damages[tort]no claim

Misrepresentation

Conditions [sec 12 (2) of the Sale of goods Act]Warranties

A representation is a statement made at the time of the contract by way of affirmation, denial or description or presentation of a material fact to contract.It is more than the intention of parties and different from opinionSmith v Land & House Property Corp (1884) 28 Ch D 7The plaintiff put up his hotel for sale stating that it was let to a 'most desirable tenant'. The defendants agreed to buy the hotel. The tenant was bankrupt. As a result, the defendants refused to complete the contract and were sued by the plaintiff for specific performance. The Court of Appeal held that the plaintiff's statement was not mere opinion, but was one of fact.

RepresentationMust relate to fact and not lawMust relate to Fact and promiseThere must be a representation or assertionIt must be made with the knowledge that it is false or without belief in its truthIt must be acted uponDamages must be suffered: No fraud no damages [sec. 17 read with sec. 19 of ICA]

Ex: Prospectus of a companySec. 55 of the TP Act requires the seller of immovable propery to disclose to the buyer material defects in the property

Implied representationSpice Girls v Aprilia World Service BV 2002 Ch DA entered an contract for endorsing product [scooter] with Spice Girls [a group of 5]. Within two weeks, Ginger spice left the group, making the product vulnerable in the market. The Pop group did not disclose this to the Agency. Was the group split before endorsement ?Was there an intention to split ? Was there a misrepresentation that the group was together ?

Held misrepresentation. [Carbolic smoke ball company]

Void agreements

Mistake

Of LawOf Fact

Of ordinary law of foreign law of pvt rights

As to nature of contract as to persons contracted with as to subject matter

Mistake1. Mistake when there is no consensus ad idem [Raffles v Wichelhuas 1864 ]2. Mistake as to a matter of fact essential to the agreement[sec. 20] Ayekam Angahal Singh v UOI Air 1970 3. Mistake of Law Lakshman Prasad and Sons v Achuthan Nair AIR 1955 Mad 6524. Mistake on subject matter: Leaf v International Galleries [1950] 1 All ER 693 5. Mistake as to possibility of performance of the contract Sheikh Bros v Ochsner 1957 AC 136 ---- Griffith v Brymer (1903) 19 TLR 4346. Mistake as to identity of parties Boulton v Jones 1857--- Said v Butt 1920

Mistake: New developmentsContract made inter praesentes Phillips v Brooks 1919 Ingram v Little [1960] 3 All ER 332 Bell v Lever Bros Ltd. [1932 AC 161]Plea of Non est factumDularia Devi v Janardan Singh AIR 1990 SC 1173

Legality of object and Consideration1. It is forbidden by law Universal Plast Ltd v Santosh Kumar AIR 19852. Defeat the provision of any law Ram Sewak v Ram AIR 1962 All 177 -Abdul Piojkhan Nabab v Hussenbi 19043. Injurious to person or property Gurmukh Singh v Amar Singh 1991 2 SCC 794. Agreement Injurious to public policy Sukha v Ninni AIR 1966 - Punnakotiah v Kallapalli Kolikamba AIR 1967 AP --- Mewa Ram v Ram Gopal ILR 19265. Immoral Pearce v Brooks 1866-- Bai Viji v Nansa Nagar 1885 ----Narayani v Pyare Mohan AIR 19276. Agreement opposed to public policy Sec. 23Trading with an enemyTrafficking in public officesInterference with the administration of justiceMarriage brokerage contracts: Herman v Charlesworth 1905 2 KB 123

Void Agreements1. Agreement in restraint of marriage: sec. 26Rao Rani v Gulab Rani AIR 19422. Agreement in restraint of trade [sec. 27]Herbert Morris Ltd Saxelby 1916Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co 1894Gujarat Bottling Co v Coca Cola Company Air 1995 SC 2372Exception to an agreement in restraint of trade1. Sale of Good will2. Exception under Indian Partnership Act3. Restraint by a contract of service [employment]Niranjan Shankar v Century Spinning and Manufacturing Co AIR 19674. Trade combinationsSheikh Kalu v Ram Sharan Bhagat 1909 13 CNN 3885. Agreement in restraint of legal proceedings: sec. 28Ghose v Reliance Insurance Co 19346. Wagering Contracts

Quasi Contracts1. Claim for necessaries supplied to a person incompetent to contract [sec. 68]2. Reimbursement of money paid due by another Exall v Patridge 1799 Bansidhar Joshi v Chandrakumar AIR 1964 All 3483. Obligation of person enjoying benefit of non-gratuitous act: [sec. 70]Indu Mehta v State of UP AIR 1987 ALL 3094. Enjoyment of benefit by the defendant is necessary:P C Wadhwa v State of Punjab AIR 1987 PH 1175. Finder of Lost goods: sec. 71

Discharges/ Remedies under Law of Contract1. Performance of contract2. Quantum meruit

Performance of ContractEvery such offer must fulfill the following conditions:-1) it must be unconditionalNavin Chandra v Yogendra Nath2) it must be made at a proper time and placeStart-up v Macdonald 18433) under such circumstances that the person to whom it is made may have a reasonable opportunity for inspectionPerformance on death of a partyPerformance by the promisor or his agent or representatives. 4) An offer to one of several joint promisees has the same legal consequences as an offer to all of them.

Remedies for Breach of ContractDr. Sairam BhatAssistant Professor of Law

The LawIndian Contract Act 1872Specific Relief Act Law of obligationLaw of Unjust enrichmentLaw of Restitution

PleaNon est factumGallie v LeeSpecific Performance/substantial performance Dakin v LeeWhen time is the essence of the contract: Right to rescind the contractR K Saxena v Delhi Development Authority AIR 2002 SC 2340Impossibility of PerformanceTaylor v Caldwell (1863) 3 B&S 826Doctrine of FrustationArti Sukhdev Kashyap v Daya Kishore Arora AIR 1994

Discharge of ContractBilateral dischargeAccord and satisfactionRESCISSION AND SUBSTITUTION and NovationVARIATIONWAIVER

Breach of contractAnticipatory breachHochster v De La TourLiability of loss only due to CAUSATION [carpenter left the door unlocked] Remoteness of damagesMitigation of loss

BreachRectification and cancellation of InstrumentDamagesNominalPenalty InjunctionTemporaryPermanent

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