Business Law Chapter one Faculty of Beco

Business Law Chapter one Faculty of Beco

1. GOLLIS UNIVERSITY, BURAO CAMPUS
INTRODUCTION TO BUSINESS LAW

Part 1
THE LAW OF CONTRACT
Faculty of Business & Economics
Semester Six
.
Prepared by:Mr. Dauda W. Jamada

2. INTRODUCTION:
A vital element impacting business transactions and
decisions is Business Regulatory Framework.
Different laws and regulations govern specific aspects of
many vital decisions taken by business enterprises.
The Legal Framework within which different business
firms have to operate are largely governed by General
Laws applicable to all forms of organizations irrespective
of their size and ownership. These Laws fall into the
category of Mercantile Laws.
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3. WHAT IS
LAW?
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4. What is Law?
Law is the body of principles recognized
and applied by the state in the
administration of justice.
Law operates to regulate the actions of
persons with respect to one another and
entire group or society and the state.
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5. Branches of Law:
There are various branches of Law which include the
following:
•Civil Law
•Criminal Law
•Administrative Law
•Constitutional Law
•Business Law
•Labor Laws
•E.t.c
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6. Business Law:
This is sometimes called Commercial Law.
Business Law deals with rights and
obligations arising out of mercantile
transactions among mercantile persons.
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7. Business law includes Laws relating to:
•Contracts,
•Sale of goods,
•Negotiable instruments,
•Partnership,
•Companies,
•Insurance,
•Consumer Protection,
•and many others.
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8. The Law of Contract is the most basic part
of Business Law since it is the foundation
for many other laws falling in the category
of Business/Mercantile Law.
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9. What is a Contract?
The word Contract was derived from a
Latin word Contractum.
The word contractum means drawn or
brought together.
The following are definitions with regard to
Contract:
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10. Definitions of Contract:
Agreement creating and defining
obligations between the parties is called
Contract. - Salmond
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11. Any agreement or promise enforceable at
law is called Contract. - Pollock
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12. Agreement upon consideration basis to
do or not to do a particular thing is called
contract. - Black Stone
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13. Agreement enforceable by law is called
contract. - Indian Contract Act, 1872
Sec.2 (h)
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14. Thus Contract is defined as agreement.
To form an agreement, two elements are
needed, namely:
•Offer and
•Acceptance.
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15. What is Offer and what is
Acceptance in contract law?
The status of offer is equal to that of
question and the status of acceptance is
equal to that of answer.
The person who is making the offer is called
Offerer or Promissor or Proposer.
The person who is giving acceptance is called
Offeree or Promisee or Acceptor.
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16. Therefore:
Offer + Acceptance = Agreement
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17. Classification of Agreements:
Agreements can be classified into two
groups, namely:
•Social Agreements and
•Legal Agreements.
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18. What is Social Agreement?
The agreement which is not enforceable
by law is called Social agreement.
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19. What is Legal Agreement?
The agreement which is enforceable by
law is called legal agreement.
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20. Objectives of the Law of Contract:
To ensure that the rights and obligations created by a
contract are honored.
It is intended to ensure that what a man has been led to
expect shall come to pass, that what has been promised
shall be performed.
It creates “rights in personam” as distinguished from
“rights in rem”.
–‘Right in rem’ means a right against or in respect of a thing. This
right is available against the whole world.
–‘Right in personam’ means a right against or in respect of a
particular person/persons.
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21. Who Can Enter into a Contract?
Minors (individuals under age 18) and people who are
Mentally Incompetent do not have the legal capacity to
enter into contracts.
All other people are considered to have the legal capacity to
enter into contracts. In most states, the legal age for entering
into contracts is 18 years. A contract between a minor and
an adult may be cancelled upon request of the minor, but is
binding on the adult. The test for mental capacity to enter
into a contract is whether the person had the ability to
understand the nature and consequences of the agreement.
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22. Corporations have the power to enter into
contracts through the acts of their agents,
officers and authorized employees. Generally,
individuals associated with the corporation are not
held personally responsible for the corporation’s
debts and liabilities, including liability for breach
of contract, although there are some exceptions.
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23. FEATURES OF A VALID
CONTRACT:
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24. Features of Valid Contract can be clearly known under the heads of:
•Consensus ad idem
•Certainty
•Free Consent
•Capacity of Parties
•Consideration
•Legal Formalities
•Lawful Object
•Legal Obligations
•Possibility of Performance and
•Agreements not declared void.
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25. 1. Consensus ad idem:
Consensus ad idem means identity of minds. That
means there should be no difference between ways
of thinking of offerer & offeree. Both of them
should understand the same thing in the same way.
In the absence of consensus ad idem, the contract
is not valid.
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26. Example:
A has two houses – one at City A and the other at
City B. He wants to sell his house situated at City
A. Now he is making an offer to B to sell away one
of his house to which he gives his acceptance.
Here A is thinking about house at City A and B
has given acceptance with a view to purchase
house at City B. Here is no consensus ad idem.
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27. 2. Certainty:
The wording used in the contract must be certain.
Uncertain wording makes the Contract Void.
Example:
Related case is Taylor Vs Portington. In this case
there is a Contract between A and B according to
which A has to modernize his house and B has to
join as tenant. If the mode of modernization is
satisfactory to B. Here court decides that there is no
Certainty and therefore it is Void.
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28. 3. Free Consent:
Both parties should enter into the Contract with
Free Consent. There should be no physical
pressure (coercion) or mental pressure (undue
influence). Absence of free consent makes the
Contract Voidable. A Voidable Contract may
become either Valid or void depending upon
intention of the suffering party.
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29. 4. Capacity of Parties
Both parties should have eligibility or
qualification to enter into a Contract. Such
eligibility is called Capacity of Contract.
Minor, insolvent person`s, lunatic
persons etc have no capacity to contract.
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30. 5. Consideration:
Both parties presenting the Contract should
get benefited mutually. Consideration may
be in the form of cash or goods or act or
abstinence. Consideration need not be
adequate.
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31. 6. Legal Formalities:
Contract may be oral or documentary. In
case where it is oral, the concept of legal
formalities is not applicable. If the contract
is of documentary nature, all legal
formalities like stamp duty etc must be
properly fulfilled. If legal formalities are
not satisfied the contract becomes
unenforceable.
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32. 7. Lawful Object:
To attain validity object of the contract
must be lawful. Un-lawful object makes the
contract illegal & hence void.
Example: There is a contract between X
and Z according to which Z has to murder Y
for a consideration of Rs. 10000/- from X. It
is unlawful object.
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33. 8. Legal Obligations:
To attain validity contract must be capable of creating
legal obligations. One directional consideration leads to
friendly relations and two directional consideration leads
to legal relations.
A case on this point is Balfour Vs Balfour. In this case A
and B are husband and wife respectively. As per their
contract, husband has to send money to his wife at regular
intervals of time for the purpose of medical treatment.
Here Court decides that there is only one directional
consideration and hence their contract is not creating legal
relations. So, their contract is held to be void.
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34. 9. Possibility of Performance:
It should be possible to perform the event
agreed in the contract. Impossibility makes
the contract void.
Example: A contract to join two parallel
lines, has no possibility for performance
and hence such a type of contract is void.
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35. 10. Agreement not declared Void:
Certain types of agreements are declared to be
void by statues. As such agreements are harmful
to society and they are named as Agreement
opposed to public policy. Agreements in restraint
of trade, Agreements in restraint of marriage,
Agreements in restraint of personnel freedom etc
come under Agreement opposed to public policy.
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36. Summary:
If an agreement satisfies all the above
explained features, then it becomes a
contract.
So All Contracts are agreements, but all
agreements are not Contracts.
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37. TYPES OF CONTRACTS
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38. In connection with contracts, there are four
types of classifications. Types of contracts
in contract law are classified as follows;
•On the basis of Formation,
•On the basis of Nature of Consideration,
•On the basis of Execution and
•On the basis of Validity.
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39. 1. Types of Contracts on the basis of
Formation
On this base Contracts can be classified into
three groups, namely;
•Express Contracts
•Implied Contracts and
•Quasi Contracts.
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40. Express Contracts:
The Contracts where there is expression or
conversation are called Express Contracts.
For example: A has offered to sell his house
and B has given acceptance. It is Express
Contract.
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41. Implied Contracts:
The Contracts where there is no expression
are called implied contracts.
Sitting in a Bus can be taken as example to
implied contract between passenger and
owner of the bus.
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42. Quasi Contract:
In case of Quasi Contract there will be no
offer and acceptance so, actually there will
be no Contractual relations between the
partners. Such a Contract which is
created by Virtue of law is called Quasi
Contract.
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43. The following are situations where court can create
Quasi Contract:
•When necessaries are supplied
•When expenses of one person are paid by another
person.
•When one party is benefited by the activity of
another party.
•In case of finder of lost tools.
•When payment is made by mistake or goods are
delivered by mistake.
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44. Example: A case on this occasion is Chowal Vs Cooper.
In this case A`s husband becomes no more. She is very
poor and therefore not capable of meeting even cost of
cremation. B, one of her relatives, understands her
position and spends his own money for cremation. It is
done so without A`s request. Afterwards B claims his
amount from A where A refuses to pay. Here court applies
Sec. 68 and creates a Quasi Contract between them.
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45. 2. Types of Contracts on the basis of Nature of
Consideration:
On this base, Contracts are of two types
namely;
•Bilateral Contracts and
•Unilateral Contracts.
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46. Bilateral Contracts:
If considerations in both directions are to be
moved after the contract, it is called
Bilateral Contract.
Example: A Contract has got formed
between X and Y on 1st Jan, According to
which X has to deliver goods to Y on 3rd
Jan and Y has to pay amount on 3rd Jan. It
is bilateral contract.
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47. Unilateral Contract:
If consideration is to be moved in one
direction only after the Contract, it is called
Unilateral Contract.
Example: A has lost his purse and B is its finder.
There after B searches for A and hands it over to A.
Then A offers to pay Rs. 1000/- to B to which B
gives his acceptance. Here, after the Contract
consideration moves from A to B only. It is
Unilateral Contract.
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48. 3. Types of Contracts on the basis of
Execution
On this base Contracts can be classified into
two groups namely;
•Executed Contracts and
•Executory Contracts.
If performance is completed, it is called
Executed Contract.
In case where contractual obligations are to be
performed in future, it is called Executory
Contract.
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49. 4. Types of Contracts On the basis of
Validity
On this base Contracts can be classified into
5 groups namely;
•Valid
•Void
•Voidable
•Illegal and
•Unenforceable Contracts.
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50. Valid Contracts:
The Contracts which are enforceable in a court
of law are called Valid Contracts. To attain
Validity the Contract should have certain features
like consensus ad idem, Certainty, free consent,
two directional consideration, fulfillment of legal
formalities, legal obligations, lawful object,
capacity of parties, possibility of performance, etc.
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51. Void Contract:
A Contract which is not enforceable in a
court of law is called Void Contract. If a
Contract is deficient (lacking) in any one or
more of the above explained 10 features of
a valid contract (Except free consent and
legal formalities). It is called Void Contract.
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52. Voidable Contract:
A Contract which is deficient (lacking) in
only free consent, is called Voidable
Contract. That means it is a Contract
which is made under certain pressure either
physical or mental. At the option of
suffering party, a voidable contract may
become either Valid or Void in future.
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53. Illegal Contract:
If the contract has unlawful object it is
called Illegal Contract.
Example: There is a contract between X
and Z according to which Z has to murder Y
for a consideration of Rs. 10000/- from X. It
is illegal contract.
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54. Unenforceable Contract:
A contract which has not properly fulfilled legal
formalities is called unenforceable contract. That
means unenforceable contract suffers from some
technical defect like insufficient stamp etc. After
rectification of that technical defect, it becomes
enforceable or valid contract.
Example: A and B have drafted their agreement
on Rs. 10/- stamp where it is to be written actually
on Rs. 100/- stamp. It is unenforceable contract.
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55. Void Contracts and Illegal Contracts:
All illegal Contracts are void, but all void
contracts are not illegal:
An illegal Contract will not be implemented
by court. So, illegal contract is Void.
A void contract may not be illegal because
its object may be lawful.
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56. Void Contracts and Voidable Contracts
Becoming Valid: A Voidable Contract may
become Valid at the option of suffering
party. But a Void Contract can never and
never become Valid.
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57. OFFER IN CONTRACT:
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58. OFFER IN A CONTRACT:
Offer is one of the components of agreement. It`s
status is equal to that of question. Offer is
otherwise known as proposal. The person who is
making the offer is called offerer or promissory
or proposer.
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59. Definition of Offer:
When a person signifies to another his
willingness to do or to abstain from doing
anything, with a view to obtaining the
ascent of the other to such act or abstinence
he is said to make a proposal.
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60. Types of Offer:
Offers are of two types, namely Specific
Offer and General Offer.
If offer is made particularly to one person, it
is called Specific Offer.
On the other hand if offer is made to a
group of persons, it is called General
Offer. General offer also is so powerful as
specific offer.
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61. Example of a General Offer:
A case on this occasion is Mrs. Cary Lli (Vs) Carbolic Smoke bal
Company. In this case Carbolic Smoke bal company is a
pharmaceutical company. During contemporary period of this case a
fever called `Influenza` is in existence. This fever arises as a result of
rat bite. This fever is characterized by propagation from one person to
the other. On that occasion the company has invented capsules to
cure influenza. Here the company makes a general offer saying that
those capsules can cure influenza very quickly and prior
consumption of their capsules will avoid attack by influenza. In
addition to it the company says that if any person gets attacked by
influenza even after prior consumption, the company will pay 100
pounds to such person. Mrs. Cary Lli makes prior consumption & gets
attacked by that fever. Court decides that general offer also is valid and
hence the company is under obligation to pay 100 pounds to her.
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62. Essentials of a Valid Offer:
Offer must be Communicated: Offer attains
validity only after Communication. Un-
communicated offer is not valid.
Price Declaration, Advertisement, Prospectus
etc are not offers: All these things are only
invitations to make offer, but not offers.
See the Related case of Harve (Vs) Facie on page 20
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63. Related case is Harve (Vs) Facie. In this case A is owner
of a Stationary Shop and B is an officer. On one day B
sends an email to A requesting to inform the price of
Bumper ball pen. A sends Telegram to B saying that
price of bumper ball pen is 10 Dollars. Now B again
sends an email to A requesting for one pen. Afterwards
A replies to the email saying that he has no stock of
Bumper ball pens. B sues A. Here court decides that
price declaration is invitation to make offer and
therefore there is no Contract at all between A and B.
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64. Essentials of a Valid Offer…
Offer should be made with a view to obtain
ascent of the other party: In the absence of
intention to get acceptance the offer is not valid.
Offer may be Expression or Implied: In
presence of conversation it is called express offer
and in the absence at conversation it is called
implied offer. Both types of offers are Valid. It is
well known that Implied Contract is Valid.
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65. Essentials of a Valid Offer…
Reticence/silence leads to acceptance - This
wording sound should not be included in the
offer: In case where offerer says that Silence
indicates acceptance, that offer is not valid. As per
the rules of valid acceptance, acceptance must be
communicated. Mere silence is not sufficient.
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66. Essentials of a Valid Offer…
Legal Obligations: Offer must be capable of
creating legal relation. That means two directional
consideration must be reflected in the offer.
–A case on this point is Balfour (Vs) Balfour. In this case husband
offers to send money to his wife at regular intervals of time for the
purpose of medical treatment to which she gives acceptance. Here
the offerer is not willing to get any consideration from offeree.
Hence it is decided that the offer as well as contract are not
creating legal relations.
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67. Essentials of a Valid Offer…
Certainty: The language used in the offer must be
certain there should be no element of un-certainty.
–A related case is Taylor (Vs) Portington. In this case B
makes an offer to A saying that A has to modernize his
house & if the mode of modernization is satisfactory to
B, He (B) will join as tenant. In this offer un-certainity
can be seen. It is not Valid offer.
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68. ACCEPTANCE IN
CONTRACT:
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69. ACCEPTANCE IN CONTRACT
Offer and acceptance are components of an
agreement. Offer constitutes question and
acceptance constitutes answer.
One who gives acceptance is called Offeree
or Promisee or Acceptor.
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70. Definition of Acceptance
When the person to whom the proposal is
made, signifies his ascent there to, the
proposal (offer) is said to be accepted.
A proposal (offer) when accepted becomes
a Promise.
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71. Features of Valid Acceptance:
Acceptance must be given by that person only
to whom the offer is made: If it is specific offer,
acceptance is to be given by that person only to
whom the offer is made.
Acceptance must be Communicated: Offeree
has to communicate his acceptance to offerer.
There after only, Acceptance adopts Validity.
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72. Features of Valid Acceptance…
Acceptance Period: In case where offerer specify
certain period to give acceptance, then acceptance
is to be given before expiry of such specified
period. But at times, offerer does not specify any
period to give acceptance. In such a case
acceptance should be given within reasonable
period. The Concept of reasonable period depends
upon nature of situation.
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73. Features of Valid Acceptance…
Acceptance must be Un-Conditional: No
conditions should be linked to acceptance.
Conditional acceptance is not valid. On the other
hand it can be analyzed that conditional
acceptance is not at all acceptance, But counter
offer. Whenever it is taken as counter offer, it can
be conformed that there is no contract.
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74. Features of Valid Acceptance…
Acceptance should be made in the method
specified by the offerer: When offer is made,
acceptance should be made in the method
specified by offerer. For Example: Mr. A has
made an offer and adds that if any person wants to
give any acceptance he has to raise his hand. Now,
to give acceptance that method only is to be
adopted.
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75. Features of Valid Acceptance…
Acceptance given to revoked offer is not valid:
When an Offer is revoked, the acceptance given to
revoked offer is not valid. Offer must be revoked
before acceptance.
Acceptance given to renewed offer is Valid: It
might have been revoked previously. It is
sufficient if offer is in force at the time of
acceptance.
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76. Features of Valid Acceptance…
Acceptance must be absolute: That means
acceptance should be given to entire offer. Partial
acceptance is not Valid. It can be analyzed that
partial acceptance is nothing but conditional
acceptance and therefore Counter offer.
Acceptance must be communicated in the
method specified by offerer: When an offer is
made for the same, acceptance must be
communicated in the method specified by offerer.
For example: an offerer has suggested to communicate acceptance by means of
registered post then such channel only should be adopted.
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77. Features of Valid Acceptance…
Acceptance is Irrevocable: When once
acceptance is given. It cannot be taken back under
any circumstances. Soon after acceptance contract
comes into force and binds over the parties. So,
revocation of acceptance is nothing but breach of
contract.
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INCAPACITY IN
CONTRACT ACT:

79. INCAPACITY IN CONTRACT ACT
Lack of eligibility to enter into Contract is
called Incapacity.
Incapacity arises due to the following reasons.
•Incapacity due to Status
•Incapacity due to Mental Deficiency
•Incapacity due to Unsound Mind
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80. Incapacity to Contract due to Status
Foreign Rulers e.g. Diplomats: The effect of
Contracts made with foreign rulers will differ
from England law to Indian Law. According to
England Law, England citizens can enter into
Contracts with their foreign rulers. In case where
the foreign ruler breaches the Contract, England
citizen can sue the foreign ruler only when such
foreign ruler has given permission to Sue.
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81. According to Indian Law, Indian citizens
can enter into contracts with foreign rulers.
If that foreign ruler breaches the Contract
and Indian citizen wants to file a suit,
permission from Central Government is
required.
What about Somaliland?
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82. Aliens: Aliens are foreign people who have
obtained citizenship in one Country (other
than their own) in accordance with the
Constitutional law. The Contract made with
aliens become Void when war breaks out,
between the two Countries.
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83. Convicts: Convicts means prisoners. So
long as they are in the Prison, they have no
capacity to enter into a Contract. After
completion of Period of imprisonment, they
can enter into Contracts.
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84. Insolvent Persons: These are people who
do not have enough money to pay debts or
buy goods. Insolvent persons have no
eligibility to enter into Contracts. Therefore
Official receiver of the insolvent person
enters into Contracts in Connection with
Sale of insolvent person’s property.
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85. Professional Disqualification: In some countries
there is no profession based Incapacity.
Professional disqualification is seen for example in
England. Physicians (doctors) from Royal Medical
College cannot enter into Contracts with their
patients. Similarly barristers/lawyers cannot enter
into Contracts with their clients.
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86. Married Woman: Married Woman has
capacity to Contract. If that Contract is in
connection with necessaries. She is capable
of making her husband liable to send the
consideration concerned. If the Contract is
related to luxuries, her husband is not liable.
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87. Companies and Corporations: These are
artificial persons created by law like a
natural person, companies and corporations
can enter into Contracts.
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88. Incapacity to contract due to Mental
Deficiency:
Mental deficiency means lack of mental
maturity. Minor suffer from mental
deficiency. According to Indian law those
persons who have not completed the age of
18 years and in England those who have not
completed 21 years become minors. While
in Somaliland, minors are said to be those
below the age of 15 years.
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89. Incapacity to contract due to Unsound
Mind:
The following persons suffer from unsound mind:
Idiots: Idiots are the persons who suffer
from Unsound mind from birth itself.
Therefore they cannot enter into Contracts
throughout their life. In such a way they
suffer from permanent Incapacity.
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90. Insane Persons: Insane persons will have
two states namely; state of Sanity and State
of Insanity. During state of Sanity, they can
enter into Contracts. Thus they suffer from
temporary Incapacity.
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91. Drunkards: These persons also suffer from
unsound mind temporary after getting
recovered from the effect, they can enter
into Contracts.
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92. Introduction to Business Law -
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AGREEMENT IN
RESTRAINT OF
TRADE:

93. AGREEMENT IN RESTRAINT OF TRADE:
Certain types of agreements are declared as
void by statues. Those agreements are
harmful to Society and they are called
'Agreements Opposed to Public Policy'. Out
of them, agreement in restraint of trade is
one.
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94. The agreements which restrict trade
business or profession are called
agreements in restraint of trade. One citizen
cannot restrict lawful business of the
other.
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95. What are the exceptions for
Restraint of Trade?
The following are some occasions on which agreement in
restraint of trade attains Validity:
Sale of Goodwill: In case where sale of Goodwill takes
place, the person who has paid for Goodwill can restrict
the other on reasonable base from doing the business
concern.
With retiring Partner: At the time of retirement of the
partner, the existent partners can restrict the retiring
partners from carrying on the same business.
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96. Among Partners: Partners of a firm may enter
into an agreement in restraint of trade according to
which no one of them should carry-on the same
business individually. It is Valid.
At the time of Dissolution: Partners of a firm can
make an agreement in restraint of trade at time of
dissolution of firm according to which no one of
them should do the same business without prior
permission from others.
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97. Elimination of Competition: An agreement in restraint of
trade can be made to eliminate competition on reasonable
basis.
Trade Unions: A trade Union may restrict an entrepreneur
or an enterprise from doing certain business for the
purpose of labor welfare. It is Valid but it should be a
registered trade union.
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98. MISTAKE IN
CONTRACT:
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99. MISTAKE IN CONTRACT:
Erroneous belief about something or having
wrong opinion about something is called
mistake. While entering into Contract parties
think that a particular thing with regard to their
Contract is in a particular way. But that particular
thing will not be in that way as they think.
Mistakes in contract law are of two types, namely;
•Mistake of Law and
•Mistake of Fact.
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100. Mistake of Law:
If parties are under confusion with
regard to legal provisions. It is called
Mistake of law.
Again mistake of law is of two types.
Namely;
–Mistake of Home Law and
–Mistake of Foreign Law.
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101. Mistake of Home Law: In case where
parties are confused with regard to home
law provisions, it becomes mistake of home
law.
It is not excusable mistake. Contract cannot
be avoided. Consequences are to be faced.
In the Court, a person cannot say that he
has no knowledge of home law.
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102. Mistake of Foreign Law: If parties are
under confusion with regard of foreign law
provision, it is called Mistake of Foreign
Law and it will be excused by the Courts.
Contract can be avoided. The provision is
so because it is not at all possible to a
person to have touch with law of all
Countries.
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103. Mistake of Fact:
If parties are under confusion with regard to
terms of Contract, It is called Mistake of Fact.
Mistake of Fact is of two types, namely;
•Bilateral Mistake and
•Unilateral Mistake.
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104. Bilateral Mistake:
If both parties are under Confusion, it is
called Bilateral Mistake. In case of such,
contract can be avoided. Again Bilateral
Mistake is of two types, namely;
•Mistake as to Subject Matter
•Mistake as to Possibility of performance.
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105. Mistake as to Subject Matter:
It is of six types, namely;
–Mistake as to Existence of Subject Matter.
–Mistake as to Identity of Subject Matter.
–Mistake as to Quality of Subject Matter.
–Mistake as to Quantity of Subject Matter.
–Mistake as to Title of Subject Matter.
–Mistake as to Price of Subject Matter.
Refer to the Lecture Notes for details of each of the above:
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106. Mistake as to possibility of Performance:
Here both parties think that it is possible to perform the
Contracts. But actually it will be an impossible event. In
such a case contract gets discharged.
Example: A has to pay Rs. 100000 to B and for that B has
to marry C. While entering into the Contract A and B think
that C is alive. But actually C was dead five years ago.
Here mistake as to possibility of performance can be seen
soon after formation, the Contract gets discharged due to
Pro-Contractual impossibility.
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107. Unilateral Mistake:
If only one party is under Confusion, it is called
Unilateral Mistake. In case of Unilateral Mistake
Contract cannot be avoided.
For example: A wants to sell away his house at a
price of $6000. He makes an offer to B and by
mistake he quotes a price of $5000 to which B
gives his acceptance. Here only A is under
mistake. It is Unilateral mistake and Contract
cannot be avoided.
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108. Exceptions for Unilateral Mistake:
The following are the exceptions where
contract can be avoided though there is
Unilateral Mistake:
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109. Mistake as to identity of Parties: If only one party is under Confusion
with regard to identification of party, Contract can be avoided.
A case on this point is “Lake Vs Simons. In this case A is a gold
merchant and B is a dacoit woman. She convinces A that she is wife of
Charles and thus obtains some Ornaments on Credit basis. Here only
A is under mistake. There after B sells away those ornaments to C and
goes out of reach. Afterwards A comes to know that his Ornaments
are at C. He Sues C to get them back. Court decides that Contract can
be avoided and hence C is under obligation to return these Ornaments
to A. Sale of goods Act says that seller cannot pass on a better title
that what he himself has.
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110. Mistake as to Nature of Contract: If only one party is under confusion
with regard to nature of Contract, then also Contract can be avoided.
A case on this point is Faster Vs Machillon. In this case A is a
gentleman and he is not good at sight. B is A`s relative. On one day B
brings a bond to A and asks him to sign, saying that it is Surety form.
But it is actually bill of exchange. Believing that it is Surety bond, A
signs. Here mistake can be seen only from the side of A only. Under
this exception Court decides that A can avoid payment of the bill.
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111. AGREEMENTS
OPPOSED TO
PUBLIC POLICY:
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112. AGREEMENTS OPPOSED TO PUBLIC
POLICY:
Certain types of agreements are harmful to
Society. Such agreements are called
agreements opposed to public policy. Such
agreements are declared as Void by Status.
The following are the agreements opposed
to public policy.
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113. Agreements in Restraint of Trade
Agreements in Restraint of Marriage
Agreements in Restraint of Personal Freedom
Agreements in Restraint of Parental Rights
Agreements with regard to Compromise of offence
Agreements with regard to sale of Public Offices and Titles
Agreements with Alien Enemy
Agreements based on Bribes
Agreements to form Monopoly
Agreement to Commit a Crime
Agreements to defraud Creditors
Agreements to defraud Government
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114. TYPES OF
DAMAGES IN
CONTRACT LAW:
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115. TYPES OF DAMAGES IN CONTRACT LAW:
The term damages is to be understood as
Compensation. Whenever one of the party in the
Contract comes across breach of Contract, the
other party has some rights. Out of those rights,
they have the right to sue for damages i.e.
damages for breach of contract.
The objective of court in arranging for
compensation is to bring the situation as if there is
no Contract between the parties.
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116. The following are different types of
damages in contract law.
•General Damages
•Specific Damages
•Nominal Damages
•Vindictive Damages
•Liquidated Damages.
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117. General Damages:
The loss arising out of breach of Contract
Can be divided into two parts, namely
direct loss and indirect loss.
If only direct loss is compensated it is
called General Damages.
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118. Specific Damages
In case where indirect loss also is
compensated besides loss, it is called
Specific Damages. To get specific
damages, concerned special situation must
be communicated.
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119. Nominal Damages:
At times, on account of breach of Contract,
the other party may not come across any
loss. Though it is the situation, the other
party can file a Suit. Then Court decides a
very little amount of Compensation. It is
called Nominal Damages.
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120. Vindictive Damages:
It is otherwise known as penalty damages.
Here Contract will be breached by one of
the parties and the other party comes across
heavy suffering which cannot be pressured
in the form of money. Then Court decides
heavy amount as Compensation.
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121. Example:
A case on this point is Davidson Vs Barclays Bank.
In this case Mr. A is a book seller and he is
customer of Barclays Bank. On one day he issued a
cheque amounting to 2 pounds, to one of his
Creditors. But the Banker dishonors the cheque
negligently though there is sufficient credit to his
account. As a result A`s business as well as
personal reputation gets destructed. There after A
files a Suit and gets penalty damages amounting to
250 pounds, from his banker.
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122. Liquidated Damages
It is otherwise known as Predetermined
Damages. The terms of Contract determine
the amount of Compensation.
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123. Example:
A case on this point is Dunlop Pnumatic Tyre Company
Vs New Garage and Motor Company. In this case there is
a Contract of agency between DNT Company and NGM
Company where DNT Company is Principle and NGM
Company is its agent. Per the terms of their Contract if
NGM Company sells goods below the listed Price, NGM
Company has to pay five pound per unit thus sold. Two
units are sold below Specified Price. Court arranges for 10
pounds as determined by Contract.
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124. REMEDIES FOR
BREACH OF
CONTRACT:
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125. REMEDIES FOR BREACH (BREAKING
A PROMISE) OF CONTRACT:
Whenever contract is breached by one of the Party in a
contract, the other party comes across some suffering.
Therefore, contract act has given certain rights to such
suffering party. Those rights are called remedies for breach
of contract. These are given below:
•Right to sue for Damages.
•Rights to sue for Specific Performance.
•Rights to sue for Injunction Order.
•Rights to sue for Quantum Meruit.
•Rights to sue for Recession of Parties.
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126. Right to sue for Damages
Damages in legal terms are called
Compensation. Whenever one of the party
in the Contract comes across breach of
Contract, the other party has rights to sue
for damages.
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127. Rights to sue for Specific
Performance
At times the suffering party may file a
suit/case claiming specific performance
from the party which has breached the
contract.
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128. Rights to sue for Injunction Order
The order issued by court restricting a
person from doing a particular thing is
called injunction order. Upon breach of
contract the suffering party may proceed
legally for injunction order.
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129. Rights to sue for Quantum Meruit
Whenever a party performs the contract
partially and then the other party breaches
the contract, Suit can be filed claiming
proportionate remuneration. It is called suit
for quantum meruit.
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130. Rights to sue for Recession of
Parties
At times, the suffering party may sue for recession for
contract.
Example: A contract has got formed between A and B on
1st January. According to their contract A has to supply
100 pairs of readymade dresses to B, on 1st April on 28th
March strike by transport companies is announced which
will be called off on 3rd April. It should be noted that A
cannot supply on 1st April. But B is in need of those
dresses only on 1st April. Hence B can sue for recession
on contract.
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131. TERMINATION OF
CONTRACT:
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132. TERMINATION OF CONTRACT:
Contract creates relation between the parties and binds them
over.
Termination of such contractual relations is called
discharge of contract.
The following are different modes of discharge or
termination of contract.
•Discharge by Performance.
•Discharge by Breach of Contract.
•Discharge by Impossibility.
•Discharge by Operation of Law.
•Discharge by Lapse of Time.
•Discharge by Mutual understanding or by Agreement.
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133. Discharge of contract by Performance
As said by Salmond, contract creates
obligations to parties. If both parties
perform their contractual obligations
promptly, the contract is said to be
discharged by performance. It is the ideal
method that a number of contracts gets
terminated in this way.
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134. Discharge of contract by Breach
Failure in performance of contractual obligation is called
breach of contract. Discharge of contract takes place by
breach of contract also. Breach of contract is of two types.
Namely;
•Actual breach and
•Anticipatory breach.
In case where contract is breached by party on the date of
performance, it is called actual breach. If breach of
Contract takes place before the date of performance, it is
called anticipatory breach.
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135. Discharge of contract by Impossibility
The element of impossibility terminates contractual
relations. Impossibility is of two types. Namely;
•Pre Contractual impossibility and
•Post Contractual impossibility.
If impossibility has already come into force before the
contract itself, it is called Pre-Contractual impossibility.
Here discharge of Contract takes place soon after formation
of Contract.
The impossibility which comes into force after the contract
is called Post-Contractual Impossibility. Here contractual
relations will exists only up to occurrence of impossibility.
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136. Discharge of contract by lapse of time
Limitation act has specified duration to perform
different contracts. The duration thus specified is
called limitation period. Soon after expiry of
limitation period, the contract gets discharged.
–Example: There is a contract of loan between A and B. Her
limitation period is 3 years. After completion of 3rd year discharge
of contract takes place and debtor – creditor relationship comes to
an end. Thus it becomes time bared debt which cannot be
recovered by means of legal proceedings.
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137. Discharge of contract by Operation of
Law
This can be as following;
By Death: Whenever one of the parties comes
across death, contractual relations will come to an
end.
By Insolvency: When one of the parties to the
contract becomes insolvent, he forgoes capacity to
contract and those contracts which were made by
that person will get discharge.
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138. By Lunacy: When one of the parties gets attacked
by lunacy discharge of contract takes place.
Right and liability going into the hands of same
party: Contract creates right to one party and
liability to the other when right and liability reach
the same person, the result is discharge of
contract.
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139. Example:
Example: X has drawn a bill on Y. Here X
has right to collect amount on the bill and Y
has liability to pay. There after X has
endorsed the bill to Z. Where Z has got the
right and liability is with Y. Assume that Z
has endorsed the bill to Y. Now right as
well as liability are with Y. This situation
discharges the contract.
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140. Discharge of contract by Agreement
This can be as following;
By Alterations: Whenever Material alterations in contract
are made, then it is said that old contract has got
discharged and a new contract has come into force.
By Renewal: At times parties to the contracts may
substitute completely new contract in the place of old
contract. Now the old contract has got discharged.
By Recession: In case of recession old contract gets
discharged and there will be no formation of new contract.
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141. Example: There is a contract between A and B according
to which A has to supply 100 pairs of readymade dresses
to B on 10th January. Where date of formation of contract
is 1st January. On 2nd January A says to B that those
dresses have become out of fashion and hence not possible
to assemble 100 pairs. Still B says that though he (B)
supplies 100 pairs by taking a lot of risk, B cannot sell
them because they are outdated. Thus by mutual
understanding, they have terminated their contract.
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142. END OF PART ONE
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