Contract laws1-iilm-1

Slide 1:

What is a contract A promise or a set of promises made by one person to another, which the courts will enforce. A contract intends to formalize an agreement between two or more parties, in relation to any subject matter. It is a formal culmination of the first stage of the relationship between two parties who entered into a business deal.

Slide 2:

Fundamentals of the Contract Law The classical contracts law is founded on three essential principles - A contract is a negotiation activity. It is based on the will of parties [ consensus ad idem- agreement ] Freedom of Contract is paramount to the agreement.

Slide 3:

Foundations of the modern contract law Contracts law has its foundations in the law of obligations, The law of restitution, and, The law of unjust enrichment.

Slide 4:

What does a law of contract do? Avoids litigation. Establishes set of rules for compliance. Penalizes defaulters.

Slide 5:

Freedom of contract A contract is seen as an instrument of bargaining between the parties Importantly, this bargaining activity between the parties is characterized by free bargaining – without any extraneous influence A contract is seen as an instrument of agreement between parties based upon the idea of equality.

Slide 6:

Understanding the element of freedom in a contract Ensuring this strand is necessary to rule out any possibilities of inequalities in the bargaining and negotiation of a contract. Freedom of contract is ensured to understanding the primary obligations of the parties to the contract We also need to know the element of freedom in the contract to ensure it is not against public policy.

Slide 7:

Essentials of a contract Contract is an agreement between parties, it is understood that there is a mutual consent between the contracting parties.. Mutual consent is there when the parties are in agreement about the subject matter of the contract. ex: I try to sell you a BMW and you come to me with the idea that I am likely to sell you a Mustang, there is no mutual consent at all, and hence no enforceable contract.

Slide 8:

Essentials of a contract Offer and Acceptance Mutual consideration Performance of the contract Good faith No violation of public policy

Slide 9:

What does the contracts law govern The process of the formation of the contract With regard to the performance of the contract.

Slide 10:

How is a contract formed Contracts can be oral or written Contracts can also be made through representation – either express or implied

Slide 11:

Basic considerations before the court with respect to contracts Whether the contract demonstrates an intention to create a legally enforceable relationship between parties, Is the agreement a valid or void agreement, or is under the voidable category Is the contract having a subject-matter prohibited by the law, or is against public policy.

Slide 12:

Essentials of a contract .. Offer/proposal – what it is A promise made by one party to another. Except when expressly specified, an offer can be made in any form. Although today many areas have express and standard forms of contract, ex: real estate contracts, employment contracts etc.

Slide 13:

Essentials… Offer… An expression of willingness to contract on a specific terms, made by a person, who knows that he will be bound by the contract. An offer has to be made in clear and unambiguous terms. Where more than one interpretation can be given to an offer, neither interpretation will be followed and there is no enforceable contract .

Slide 14:

Essentials… Offer… A counter-offer is not an acceptance of the offer. A counter-offer extinguishes the original offer and then acceptance cannot be conveyed to the original offer.(the original offer lapses when a counter-offer is made) A request for information is not a counter-offer. Request for information can be done anytime after the offer is made and that doesn’t extinguish the offer. Parties are free to accept the original offer.

Slide 15:

Essentials… Offer… An invitation to treat is not an offer. Goods displayed in a shop window or on a shelf . When a book is placed in a shop window priced at £7.99, the bookshop owner has made an invitation to treat. When I pick up that book and take it to the till, I make the offer to buy the book for £7.99. When the person at the till takes my money, the shop accepts my offer, and a contract comes into being.

Slide 16:

Essentials… Offer… Advertisements basically work in the same way as the scenario above. Advertising something is like putting it in a shop window. Auctions : The original advertising of the auction is just an invitation to treat. When I make a bid, I am making an offer. When the hammer falls, the winning ‘offer’ has been accepted. The seller now has a legally binding contract with the winning bidder.

Slide 17:

Essentials … Acceptance Acceptance must be in clear and unconditional terms. Acceptance has to be in the specified manner, and when not specified, can be in oral or in writing, but in some cases an offeree may accept an offer by doing something, such as delivering goods in response to an offer to buy. The Courts will only interpret conduct as indicating acceptance if it seems reasonable to infer that the offeree acted with the intention of accepting the offer.

Slide 18:

Essentials … Acceptan ce Where expressly specified, the acceptance has to be in writing, or in the manner specified in the cited instrument. For example, real estate contracts are unenforceable unless written in an express and specified manner. No effect until expressly communicated to its offeror in absolute and unqualified terms, in the manner specified.

Slide 19:

Essentials … Acceptance… Remaining silent cannot amount to acceptance, unless it is absolutely clear that acceptance was intended. Brogden v Metropolian Rail Co (1877) Felthouse v Bindley (1862) Re Selectmove Ltd (1995) - The Court of Appeal pointed out that an acceptance by silence could be sufficient if it was the offeree who suggested that their silence would be sufficient.

Slide 20:

Essentials… Acceptance… Offer expires, if not accepted within the specified period. Offer remains open until it is withdrawn or revoked. Offer can be revoked any time before it is accepted. Express notice of withdrawal of offer is not necessary before its acceptance.

Slide 21:

Essentials… Consideration some right, interest, profit or benefit accruing to one party, or some forebearance, detriment, loss or responsibility given, suffered or undertaken by the other. Currie v Misa (1875) the party trying to enforce the contract must have ‘paid’ something in exchange for the promise Privity of contract – Strangers have no role in the contract. Contract invalid without consideration, exceptions - promise to pay a time-barred debt, agreement between the principal and agent, gifts, a promise to compensate for completed acts done voluntarily.

Slide 22:

Essentials… Consideration… “ An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable. “ Dunlop v Selfridge Ltd [1915] AC 847. - Consideration has to be real, though inadequate White V.Bluett, Bolton V.Madden - Consideration can be past, present or future. Promise to perform an existing duty not a valid consideration. Consideration must move at the desire of the promisor -Durga Prasad v.Baldeo. It can move either from the promisee or any other person. (Chinnayya V.Ramayya)

Slide 23:

Strangers can enforce such consideration. 1. Trust of contractual rights or a beneficiary under a contract. - Klause Mittelbachert V.East India Hotels Ltd.(1997) 2. Where, by conduct, a third party's role has been accepted by the contracting party. - Narayani Devi V.Tagore Commercial Corporation(1973) 3. provision for marraige expenses or maintenance under family arrangement - Veeramma V. Appayya (1957)

Slide 24:

Capacity to contract Any person is competent to bind himself to any contract he chooses to make, provided that it is not illegal or void for reasons of public policy. Exceptions to these are the minors, lunatics, people under the influence of intoxication. Corporations, though seen as legal person, were severely restricted in case of contractual capacity, which is largely erased out now and a corporation can enter into contracts just like any natural person.

Slide 25:

Capacity to contract The law made special rules with regard to minor’s capacity to contract. A contract made with a minor is binding upon the adult and not on the minor. The contract can, however, be ratified by the minor upon attaining the age of majority. There need be no consideration for ratification. A contract entered into by a minor with regard to the supply of necessaries to him for a consideration is a valid contract.

Slide 26:

Essentials….Free Consent Consent is said to be free when – There is no coercion, No undue influence on either of the contracting parties, Absence of fraud, No misrepresentation by either of the parties No mistake as to the determining terms of the contract.

Slide 27:

Essentials… Free Consent… COERCION Any act forbidden by the penal laws, unlawful detention, or threat to do so, any property, to the prejudice of any person, with the intention of causing any person to enter into an agreement Ex:- A, using a threat of suicide, forces B to release certain properties in his favour, which B believed to be his own. B can sue A for avoiding the deed of release, as A has acted in violation of the Contracts law(Sec.15 of Act,1872). Use of coercion vitiates the contract and makes it a voidable contract.

Slide 28:

Essentials… Free Consent… UNDUE INFLUENCE where the relations between the parties are such that one party is likely to dominate the will of the other and uses that position to obtain an unfair advantage over the other. Undue influence is said to be there when – Where one person holds a real or apparent authority over the other or where he stands in fiduciary relation to the other; or Where he makes a contract with a person suffering from a temporary or permanent mental incapacity by reason of age, illness or distress.

Slide 29:

Essentials… Free Consent… FRAUD An intentional misrepresentation of facts. Assertion of facts without belief in their truth, Active concealment, Mere silence is no fraud, it is fraud when there is a duty to speak. Half-truths. In an absence of duty of voluntary disclosure, if a person stops mid-way disclosure, he is guilty of fraud. Promise made without an intention of performing the promise.

Slide 30:

Essentials… Free Consent… MISREPRESENTATION A misstatement of a fact material to the contract. It renders the contract voidable at the option of the deceived person. Unwarranted statements – positive assertion of an untrue information as true. Breach of duty – any act or omission which brings an advantage to the person committing it by misleading the other to his prejudice. Inducing mistake about the subject-matter Suppression of vital facts.

Slide 31:

Essentials… Free Consent… MISTAKE A mistake as to a matter of fact, Such a fact about which the parties are mistaken is essential to the contract. This factor vitiates free consent only with regard to a mistake of fact, not law. MISTAKE – ESSENTIAL FACTS With regard to the identity of the parties, The identity and nature of the subject-matter, and The nature and content of the promise itself.

Slide 32:

Void Agreements Agreement in restraint of marriage: sec. 26 Agreement in restraint of trade [sec. 27] Exception to an agreement in restraint of trade - 1. Sale of Good will 2. Exception under Indian Partnership Act 3. Restraint by a contract of service [employment] Trade combinations Agreement in restraint of legal proceedings: sec. 2 Wagering Contracts.

Slide 33:

Performance of contracts Offer of performance is called a tender A tender must be unconditional Must be made at proper time and place The promisee must be given an opportunity to ascertain that the goods are according to the contract and Where there are a number of joint promisees, the offer of performance may be in favour of anyone of them.

Slide 34:

Discharge of contract End of contractual obligations. By performance of the contract – parties have performed their obligations in the contract. By breach of contract – actual and anticipatory breach of contract By impossibility of performance – death or incapacity of a party, doctrine of frustration, supervening impossibility By agreement and novation – parties consent to end contractual duties; and substitution of the existing contract with a new one.

Slide 35:

Breach of contract party under a contractual duty fails to perform, or does an act whereby the performance of the contract by him becomes impossible, it is seen as breach of contract. Breach of contract by one party discharges the other from obligations. The breach may be actual – non-performance of the contractual obligation on the date its performance fell due, the breach can be anticipatory – before its performance was due. Anticipatory breach gives an option to the promisee to put an end to the contract.

Slide 36:

Breach of contract- Anticipatory The promisee has two options- rescind the contract immediately, or may not act immediately and wait for its performance or when it fell due. The promisee elects to rescind the contract, he also has a right to bring an action for breach of contract. The promisee may also elect to keep the contract alive.

Slide 37:

Remedies for breach of contract DAMAGES Compensation for loss or damage caused by the breach of contract. Two factors need to be answered in an action for damages for breach of contract. Whether the action is a proximate consequence of the breach of contract or was the action based on a consequence of remoteness of damage. ex: Hadley v. Baxendale (1854)

Slide 38:

Remedies....... 2. If the damage was found to be a result of the proximate consequence of breach of contract, then the next question would be the quantum of compensation. What is the measure of damage? Quantum of damages is based on the idea of making good the loss suffered by the promisee and to put him in the same position in which he would have been if the breach had not occurred and the contract performed.

Slide 39:

Remedies …… Damages are ascertained as on the date of breach of contract. Non-ascertainment with certainty or precision does not absolve the party defaulting on the contract, from paying up adequate damages. The plaintiff has to ensure the loss is not aggravated and cannot claim any sum which is arising out of an act attributed to his own neglect. The burden of proof with regard to steps taken to mitigate the loss is on the plaintiff.

Slide 40:

Remedies…… Liquidated damages – quantum of damages predecided by the parties at the time of contract. In this case, the plaintiff can recover the said agreed amount without having to prove the quantum of loss suffered by him. If the amount fixed is excessive and highly disproportionate to the likely loss, the amount is fixed in terrorem, with a view to discouraging breach, and is known as penalty.

Slide 41:

Remedies…. QUANTUM MERUIT compensation for the part-performance, if there is breach of contract by the promisor. This remedy is available only for the part of the work done by the party other than the one making a breach of contract. It is not an action for compensation for breach of contract, but just an action for restitution, for compensation for the part performance of the contract.

Slide 42:

Remedies…. Essentials of an action for quantum meruit - One of the parties make a breach of contract, or prevents the performance of it by the other side. The party injured by the breach of the contract, who has already performed a part of it, elects to be discharged from further performance of the contract, and brings an action for recompense for the value of work already done.