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Definition of Contract
Contract is a voluntary, deliberate, and legally binding
agreement between two or more competent parties.
Contracts are usually written but may be spoken or implied, and
generally have to do
with employment, sale or lease, or tenancy.
A contractual relationship is evidenced by
(1) An offer
(2) Acceptance of the offer
(3) Valid (legal and valuable) consideration.
Each party to a contract acquires rights and duties relative to
the rights and duties of the other parties.
However, while all parties may expect a fair benefit from the
contract (otherwise courts may set it aside as
inequitable) it does not follow that each party will benefit to
an equal extent.
Existence of contractual-relationship does not necessarily mean
the contract is enforceable, or that it is
not void (see void contract) or voidable (see voidable
Contract). Contracts are normally enforceable whether or
not in a written form, although a written contract protects all
parties to it. Some contracts, (such as for
sale of real property, installment plans, or insurance policies)
must be in writing to be legally binding and
enforceable. Other contracts (see implied in fact contract and
implied in law contract) are assumed in,
and enforced by, law whether or not the involved parties desired
to enter into a contract.
Contracts are enforceable by law
Contracts are promises that the law will enforce. The law
provides remedies if a promise is breached or
recognizes the performance of a promise as a duty. Contracts
arise when a duty does or may come into
existence, because of a promise made by one of the parties. To
be legally binding as a contract, a promise must
be exchanged for adequate consideration. Adequate consideration
is a benefit or detriment which a party
receives which reasonably and fairly induces them to make the
promise/contract. For example, promises that
are purely gifts are not considered enforceable because the
personal satisfaction the grantor of the promise may
receive from the act of giving is normally not considered
adequate consideration. Certain promises that are not
considered contracts may, in limited circumstances, be enforced
if one party has relied to his detriment on the
assurances of the other party.
Different authors defined a contact in various ways. Let us see
some of them.
Every agreement and promise enforceable at law is a contract -
Sir Fredrick Pollock
A contract is an agreement, creating and defining the obligation
between parties - Salmond
A contract is an agreement enforceable at law made between two
or more persons by whom rights are
acquired by one or more to acts or forbearances on the part of
others. - Sir William Anson.
Essential elements of a valid contract
The following are the essential elements of a valid contract
:
1. Offer and Acceptance. In order to create a valid contract,
there must be a 'lawful offer' by one party and
'lawful acceptance' of the same by the other party.
2. Intention to Create Legal Relationship. In case, there is no
such intention on the part of parties, there is
no contract. Agreements of social or domestic nature do not
contemplate legal relations.
Case :- Balfour vs. Balfour(1919)
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3.Lawful Consideration. Consideration has been defined in
various ways. According to
Blackstone,"Consideration is recompense given by the party
contracting to another." In other words of Pollock,
"Consideration is the price for which the promise of the another
is brought."
consideration is known as quid pro-quo or something in
return.
4. Capacity of parties. The parties to an agreement must be
competent to contract. If either of the parties
does not have the capacity to contract, the contract is not
valid.
According the following persons are incompetent to contract.
(a) Minors,
(b) Persons of unsound mind, and
(c) Persons disqualified by law to which they are subject.
5. Free Consent. 'Consent' means the parties must have agreed
upon the same thing in the same sense.
According to Section 14, Consent is said to be free when it is
not caused by-
(1) Coercion, or
(2) Undue influence, or
(3) Fraud, or
(4) Mis-representation, or
(5) Mistake.
An agreement should be made by the free consent of the
parties.
6. Lawful Object. The object of an agreement must be valid.
Object has nothing to do with consideration. It
means the purpose or design of the contract. Thus, when one
hires a house for use as a gambling house, the
object of the contract is to run a gambling house.
The Object is said to be unlawful if-
(a) It is forbidden by law;
(b) It is of such nature that if permitted it would defeat the
provision of any law;
(c) It is fraudulent;
(d) It involves an injury to the person or property of any
other;
(e) The court regards it as immoral or opposed to public
policy.
7. Certainty of Meaning. According to Section 29,"Agreement the
meaning of which is not Certain or capable
of being made certain are void."
8. Possibility of Performance. If the act is impossible in
itself, physically or legally, if cannot be enforced at
law. For example, Mr. A agrees with B to discover treasure by
magic. Such Agreements is not enforceable.
9. Not declared to be void or illegal. The agreement though
satisfying all the conditions for a valid contract
must not have been expressly declared void by any law in force
in the country. Agreements mentioned in
Section 24 to 30 of the Act have been expressly declared to be
void for example agreements in restraint of
trade, marriage, legal proceedings etc.
10. Legal Formalities. An oral Contract is a perfectly valid
contract, expect in those cases where writing,
registration etc. is required by some statute. In India writing
is required in cases of sale, mortgage, lease and
gift of immovable property, negotiable instruments; memorandum
and articles of association of a company, etc.
Registration is required in cases of documents coming within the
scope of section 17 of the Registration Act.
All the elements mentioned above must be in order to make a
valid contract. If any one of them is absent the
agreement does not become a contract.
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Definition of agreement:
A negotiated and usually legally enforceable understanding
between two or more legally competent parties is
called an agreement.
Agreement is an arrangement between parties, usually resulting
from a discussion, regarding a course of action.
Agreement is a meeting of the minds. An agreement is made when
two people reach an understanding about a
particular issue, including their obligations, duties, and
rights.
Agreement is the act of agreeing or of coming to a mutual
arrangement.
It is the state of being in accord.
Agreement is an arrangement that is accepted by all parties to a
transaction.
All contracts are agreements and all agreements are not
contracts
An agreement is termed a contract only when it is enforceable by
law. All agreements are not necessarily legally
enforceable. It can rightly be said that an agreement has a much
wider scope than a contract. For example
those agreements are not legally binding: are an invitation to
dinner or to go for a walk and its acceptance.
These are agreements not contracts.
An agreement does not necessarily imply a legal obligation on
the parties to the agreement. It is import here to
clarify what exactly is an obligation. Obligation is a legal tie
which imposes upon a person or persons the
necessity of doing or abstaining from doing definite act or
acts.
An agreement need not necessarily be within the framework of law
and be legally enforceable. If it is, then it is
a contract. A promises B to do physical harm to C whom, the
latter does not like and B promises to pay A Rs.
1000 to do that, it cannot be termed as a contract because such
an act would be against the law. Any
agreement of which the object or consideration is unlawful is
void and cannot be called a contract.
It would be clear from what has been said so far that an
agreement has a much wider scope than a contract. An
Agreement implies fulfilling some agreed condition. It does not
necessarily imply that the stipulated conditions
conform to the law and are enforceable by it. It may be said
that an agreement is the genus of which contract is
the species. It also makes it clear that all agreements are not
contracts but all contracts are agreements.
An agreement to sell a car may be a contract but an agreement to
go for lunch may be a mere agreement not
enforceable by law. Thus all agreements are not contracts. In
business agreements the presumption is usually
that the parties intend to create legal relations. Thus an
agreement to buy certain specific goods at an agreed
price e.g., 200 bags of rice at Rs.100 per bag is a contract
because it gives rise to a duty enforceable by law,
and in case of default through a court provided other essential
elements of a contract was made by free consent
of the parties competent to contract, for a lawful consideration
and with a lawful object.
Contract Vs. Agreements
A contract is a written or verbal agreement that is enforceable
by law. An agreement is the same, however it is
typically not enforced by the law.
A contract is a formal agreement which is legally binding,
usually created for business purposes, or to ensure the
safety of ones assets. Agreements are informally made with
family and friends, they are similar to promises.
Contracts involve a universal acceptance of the terms and the
stipulations are deemed possible to attain by all
parties. Agreements have universal acceptance, however there is
no guarantee of attainment by parties and it can
be changed at any time by either participant.
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Comparison chart
Agreement Contract
Definition
An arrangement (usually
informal) between two or more
parties that is not enforceable by
law.
A formal arrangement between two
or more party that, by its terms and
elements, is enforceable by law.
Validity based on Mutual acceptance by both (or all)
parties involved.
Mutual acceptance by both (or all)
parties involved.
Does it need to be in
writing?
No. No, except for some specific kinds of
contracts, such as those involving
land or which cannot be completed
within one year.
Consideration required No Yes
Legal effect
An agreement that lacks any of
the required elements of a
contract has no legal effect.
A contract is legally binding and its
terms may be enforceable in a court
of law.
Who can enter into a contract?
A person who
a. is of the age of majority according to the law to which he is
subject
b. is of sound mind A person is said to be of sound mind for the
purpose of making a contract, if, at the time when he makes it, he
is capable of understanding it and of forming a rational judgment
as to its
effect upon his interests.
c. is not disqualified from contracting by any law to which he
is subject is competent to contract.
Therefore a minor is not competent to contract and an agreement
by a minor is void ab initio. He can not ratify
an agreement on attaining the age of majority and validate the
same. (Void ab initio means it has at no time
had any legal validity).
The following persons are therefore incompetent to contract
1. Minors
2. Persons of unsound mind
3. Persons disqualified by law to which they are subject
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Can a Minor Enter into a Contract?
Who Is a Minor or Infant?
Traditionally, a minor or an infant is anyone under the age of
21. This has been changed by statutes in almost
every state, and a minor is now anyone under the age of 18. The
term infant and minor are used
interchangeably in most situations.
What Is the Rule When Contracting With an Infant?
Generally seeking, anyone who contracts with an infant or minor
is doing so at their own peril. That means that
the law gives to infants the ability to void, or exit the
contract as they see fit. The most common justification for
the rule is to protect minors from assuming obligations which
they are not capable of understanding. It is
obvious to see that this will lead to harsh results, so some
general exceptions have been created.
Are There Exceptions to Creating a Binding Contract with a
Minor?
If every contract with a minor was invalid, no one in their
right mind would ever enter into a contract with a
minor. To allow some minors to enter into contracts and/or
prevent minors from abusing their
position, there are several exceptions including:
Sports or Entertainment Contracts. Generally speaking, minors
who enter
into sports or entertainment contracts are held to them, and
cannot void.
Voiding a Contract. A minor can decide to void a contract before
reaching the age of maturity
(depending on the state, but usually 18). The minor can make
this decision at any time and even if the
contract has been fully performed (both parties have fulfilled
their contractual obligations)
Contracts for necessary items.. A minor cannot dissafirm a
contract for something necessary for life,
nor can a contract with a minor for necessary items be voided.
The problem is determining what's truly
necessary. Examples of necessities would include food, clothing,
and shelter. In one example, a minor
took out a mortgage on a home, then tried to get out of it. The
court held that the house was a
necessary. Transportation to get to work to pay for living
expenses might also be considered a necessary
item; a court would have to determine this.
Entire Contract. A minor cannot disaffirm part of a contract and
agree to another part of a contract; the
contract is considered in its entirety.
Ratification. A contract can only be disaffirmed while the
individual is a minor. After the person reaches
maturity, if the contract continues, the former minor is
considered to have ratified the contract and is
now bound by the contract terms. A person may ratify by signing
something, or by continuing to abide
by the contract (making payments, for example).
Property under contract. If a minor seeks to void a contract, he
or she must return any property
purchased. In the second example above, the minor must return
the car if he or she cannot keep up the
payments. The minor may also have to pay restitution for any
damages to the property.
Misrepresentation of age. If a minor misrepresents his or her
age and then declares he/she is a
minor, the contract is still not valid.
Parents of a minor. If a minor enters into a contract, the
parents are not a party to the contract and
may not be held liable if the minor doesn't fulfill the contract
terms. But if a parent or both parents co-
sign a contract along with the minor, the contract is valid and
they are bound by the terms.
Termination of a contract
Contract termination occurs when one or both parties decide to
end their contractual obligations. The easiest
way to terminate a contract is to have both parties mutually
agree that the contract is no longer necessary. If
only one party wants to end the contract, it may be much more
difficult. There are a few steps, however, that a
party can take before it starts down the road to contract
termination. In addition, there are several situations,
such as illegality and unconscionable acts, that can cause a
contract to be unenforceable and, consequently, terminated.
Mutual termination is the easiest form of contract termination.
It occurs when both parties decide that the terms
of the contract are no longer applicable. For example, if one
party makes a contract with another party to sell
widgets for six months, then after only three months, one party
decides they no longer want to buy widgets and
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the other decides they no longer want to sell widgets. The two
parties can easily decide the contract is mutually
terminated. There will not be a lawsuit or a settlement over the
contract termination, only simple paperwork
stating that the contract is mutually terminated.
5 Ways to Terminate a Contract
A contract is a legal document that binds at least two parties
to one another. A contract requires one or both
parties meet obligations detailed in the contract before it is
completed. In some instances, contract termination
can occur that will make the contract void of legal binding.
Only the parties involved in the agreement may
terminate a contract.
Impossibility of Performance
A contract typically requires one or more parties to do
something, which is called performance. For example, a
company may hire and sign a contract to have a public speaker
talk at a company event. Once the public
speaker fulfills his duties agreed upon in the contract, it is
called performance. If for some reason it is
impossible for the public speaker to fulfill his duties, it is
called impossibility of performance. The company has the right to
terminate the contract in the case of an impossibility of
performance.
Breach of Contract
When a contract is intentionally not honored by one party, it is
called a breach of contract and is grounds for
contract termination. A breach of contract may exist because one
party failed to meet his obligations at all or
did not meet his obligations fully. A material breach of
contract allows the hiring party to seek monetary
damages, and an immaterial breach of contract does not allow the
party to seek monetary damages. For
example, if you purchased a product that did not arrive until a
day after the agreed upon delivery date, that is
an immaterial breach of contract. However, if your order did not
come until two weeks after the delivery date
and it affected your business, then that is a material breach of
contract.
Prior Agreement
You may terminate a contract if you and the other party have a
prior written agreement that calls for a contract
termination because of a specific reason. The agreement must
give the details of what qualifies as a reason for
contract termination. It should also state what actions need to
take place for one of the parties to terminate the contract. In
most cases, one party must submit a written notice to the other
party to terminate the contract.
Rescission
A rescission of a contract is when a contract is terminated
because an individual misrepresented themselves,
acted illegally or made a mistake. For example, if you bought a
house but after further inspection you discover
that the seller intentionally hid the poor physical condition of
the home, you may possibly terminate the
contract. A contract rescission may take place if one party is
not old enough to enter a contract or if a elderly person is not
able to make legal decisions because of incapacity.
Completion
A contract is essentially terminated once the obligations
outlined in the contract are completed. Parties should
keep documentation showing that they fulfilled their contract
duties. Documentation is helpful if the other party
tries to later dispute the fulfillment of your contract
obligations. A court of law will require proof of contract
fulfillment if a dispute occurs.
What Happens When a Contract Is Terminated?
Contract termination may result in several different legal
consequences, which may affect each party
differently. In some cases, the contract termination might not
have caused either party any losses. In such
cases, the contract is simply terminated, and the parties are
free to create a new one in the future if they so desire.
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However, in the majority of cases, termination of contract
usually results in losses to one or both parties. This is
common in situations involving a breach of contract terms. If
this happens, the aggrieved party can usually file
a claim in court in order to recover losses that they may have
incurred. The non-breaching party may then be eligible to receive a
monetary damages award in order to be compensated for their
losses.
In some cases a contract may be terminated, but the courts will
allow the parties to form a new contract. This is
now as contract rescission and is only available under certain
circumstances. Contract rescission is common for claims involving
mistake or misrepresentation.
Bailment Contracts
Bailment, which, is derived from the French word "bailler," "to
deliver," is denned as a delivery of personal
property by one party 'to another, to be held according to the
purpose or object of the delivery and to be
returned when that purpose is accomplished, or otherwise dealt
with according to the directions of the Bailor.
A Contract where one party delivers goods to the other upon
return basis to fulfill a specific purpose is called
bailment contract. It includes two parties namely; bailer and
bailee. The person who is delivering the goods is
called bailer and the person to whom goods are delivered, is
called bailee.
Transfer of personal property by one party (the bailor) in the
possession, but not ownership, of another party
(the bailee) for a particular purpose. Such transfer is made
under an express or implied contract (called
bailment contract or contract of bailment) that the property
will be redelivered to the bailor on completion of
that purpose, provided the bailee has no lien on the goods (such
as for non-payment of its charges). The bailee
is under an obligation to take reasonable care of the property
placed under its possession. Bailment contracts
are a common occurrence in everyday life: giving clothes to a
launderer, leaving car with an auto mechanic,
handing over cash or other valuable to a bank, etc.
Example: A has handed over his fan to B for the purpose of
repairs. It is bailment contract. A is bailer and B is
bailee. Similarly X has handed over his dress Y for the purpose
of washing. It is also bailment Contract where X
is bailer and Y is bailee.
Features of Bailment
1. In case of bailment, as there is delivery of goods, there
will be change in procession.
2. Though there is change in procession, there will be no change
in title.
3. Bailment includes return of goods after fulfillment of
purpose. 4. In delivering the goods, there must be specific
purpose.
Types of Bailment Contracts
The bailment contracts are classified into Gratuitous bailments
and Non Gratuitous bailments.
Gratuitous Bailments: If there is only one directional
consideration, it is called Gratuitous bailment. In here,
the bailment contract is for the benefit of either the bailer or
the bailee only.
Example 1: Mr. A, while going to abroad, has handed over his
gold to this friend namely B for Safe custody.
Here bailer only is getting benefited.
Example 2: Y has taken Scooter for X who is his friend for 1
day. Here only bailee is being benefited.
Non Gratuitous bailments: If there is two directional
consideration it is called Non-Gratuitous bailment. In here, the
bailment contract is for the benefit of both parties.
Example: X has handed over his dress to B who is owner of a
laundry for washing. At a charge of Rs. 10/-. Here
both parties are being benefited.
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Essential elements of bailment
Three elements are generally necessary for the existence of a
bailment:
Delivery
Acceptance and Consideration
Actual possession of or control over property must be delivered
to a bailee in order to create a bailment. The
delivery of actual possession of an item allows the bailee to
accomplish his or her duties toward the property
without the interference of others. Control over property is not
necessarily the same as physical custody of it
but, rather, is a type of constructive delivery. The bailor
gives the bailee the means of access to taking custody
of it, without its actual delivery. The law construes such
action as the equivalent of the physical transfer of the
item. The delivery of the keys to a safe-deposit box is
constructive delivery of its contents.
A requisite to the creation of a bailment is the express or
implied acceptance of possession of or control over
the property by the bailee. A person cannot unwittingly become a
bailee. Because a bailment is a contract, knowledge and acceptance
of its terms are essential to its enforcement.
Consideration, the exchange of something of value, must be
present for a bailment to exist. Unlike the
consideration required for most contracts, as long as one party
gives up something of value, such action is
regarded as good consideration. It is sufficient that the bailor
suffer loss of use of the property by relinquishing
its control to the bailee; the bailor has given up something of
valuethe immediate right to control the property.
Nature of care in bailment
The degree of care required in a bailment depends on the type of
bailment involved. It is therefore important to
classify bailments to determine the standard of care that is
required. The most common classification is based
on whether the bailment arises from an agreement.
The most common bailment is a mutual benefit bailment, in which
both parties benefit. There are five types of
mutual benefit bailments: renting, work and services, pledging,
consigning, and storage and parking.
In a mutual benefit bailment, the standard of care is that of
reasonable care. Failure to use reasonable care may
subject the bailee to liability for any damages that may occur,
unless the bailee limits its liability. In a mutual
benefit bailment, the bailor has certain rights and
responsibilities. The bailor has the right to be paid for the
services rendered and to have the bailed property returned in
good condition when the bailment ends.
A gratuitous bailment is one in which only one party benefits
and there is no charge for services rendered. In a
bailment for the sole benefit of the bailor, the bailor has a
right to have the bailed property stored properly and
to have the property returned when the bailment ends. The bailee
has the obligation to store the bailed
property with a slight degree of care and to return the property
when the bailment ends. The bailor is obliged to
warn the bailee of any defects or dangers connected with the
property bailed.
In a bailment for the sole benefit of the bailee, the bailee
must use a high degree of care in taking care of the
property bailed, must use the property only as agreed, and must
return it when the bailment ends. The bailor
has the right to have the property returned in a safe condition
when the bailment ends. The bailor has a duty to
warn the bailee of any defects or dangers in the property
bailed.
Some bailments arise without agreement between the parties.
These are known as constructive bailments. One
type is a bailment of lost property. Another is a bailment by
necessity, which arises when someone obtains
possession of another's property by mistake. In both cases, the
standard of care is that of reasonable care.
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Impossibility and Frustration of the Contract
Impossibility may exist at the time of the contract or may arise
subsequently. It may be physical or legal
impossibility. In either case, the agreement is void ab-initio.
The object being that the law cannot compel the
impossible. When the subject matter is destroyed, the contract
is frustrated by virtue of physical impossibility. Even where the
object contemplated by the parties fails to materialize the
contract is frustrated.
Where a flat was hired for purposes of witnessing coronation
ceremony on fixed announced days and
subsequently the coronation ceremony was cancelled, it was held
that as the object of the contract was frustrated by the
non-happening of the coronation, the defendant was not liable to
pay balance of rent.
A contract to do an act which after the contract is made becomes
impossible or unlawful by some event which
the promisor could not prevent, becomes void when the act
becomes impossible or unlawful. When the
impossibility of performance cannot reasonably be supposed to
have been in contemplation of the contracting parties when the
contract was made, performance or further performance of the
promise is excused.
The contract may be impossible of performance due to supervening
impossibility or illegality or due to
frustration of a contract by occurrence of an unexpected event
or a change of circumstances beyond the
contemplation of parties or over which the parties have no
control. A contract may be frustrated by emergency,
regulations and restrictions. Impossibility may also be created
by change of law or destruction of subject
matter. Where an act becomes unlawful, the performance of the
contract can be excused on the ground of
impossibility. However, if impossibility is brought about by an
act of a party to the contract, the performance of
the contract is not excused. The impossibility of performance
must be in respect of a term of the contract.
However, if contract can be performed in any other manner, the
contract is not frustrated. There is a general
principle that a party prevented from doing an act by some
circumstances beyond his control, can do so at the first subsequent
opportunity.
Impossibility does not include commercial impossibility; for
example, where the performance of the contract
becomes onerous. Where a wants to avoid the construction of a
building as the building cost has become
costlier, it has been held that this is a case of commercial
impossibility and the performance is, therefore, not
excused. Similarly, restrictions imposed by Government on trade
or export are cases of commercial
impossibility.
When there is frustration, the dissolution of the contract
occurs automatically. It does not depend on the choice
or election of either party.
The doctrine of frustration cannot be availed of by the person
when the non-performance of the contract was attributable to his
own default.
How frustration due to supervening impossibility does occurs
The contract becomes impossible of performance or is frustrated
in any of the following cases:
Where the subject matter of the contract ceases to exist.
Where circumstances arise which make the performance of the
contract impossible.
Where object contemplated by the parties or the event
contemplated does not occur, the contract is
frustrated.
Where the party who is to only perform the contract dies, or is
incapacitated from performing the
contract.
Where enactment of legislation or Government interference
prevents the performance of the contract.
Where act becomes unlawful.
Effects when the contract becomes impossible:
When the contract becomes impossible, the party who has received
any advantage under it must restore it to the other party or make
compensation for it.
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Where one person has promised to do something, which he knew, or
with diligence, might have known, and
which the promise did not know to be impossible or unlawful,
such promisor must make compensation to such
promise for any loss which such promise sustains through the
non-performance of the promise. Party cannot
take advantage of impossibility caused by his own default.
DEFINITION of 'Quasi Contract'
A legal agreement created by the courts between two parties who
did not have a previous obligation to each
other. A normal contract requires two parties to consent to
mutually agreeable terms. Under a quasi contract,
neither party is originally intended to create an agreement.
Instead, an arrangement is imposed by a judge to rectify an
occurrence of unjust enrichment.
When one party knowingly receives something for nothing, the
courts may impose a quasi contract.
Quasi contract is a binding obligation that is imposed by the
courts to avoid injustice or unjust enrichment.
Alternative ways of describing a quasi contract are:
1. An implied-in-law contract imposed by the courts to prevent
injustice.
2. A special form of contract that lacks mutual assent of the
parties but which is imposed on the parties by the courts to avoid
injustice.
3. A situation in which there is an obligation as if there was a
contract, although the technical requirements of a contract have
not been fulfilled.
It is also called an implied-in-law contract.
For example, P agrees to work for D for one year, payment of the
$30,000 salary to be made at the end. P
works for six months, then unjustifiably quits. P cannot recover
"on the contract," because he has not
substantially performed. But he will probably be allowed to
recover in quasi-contract, for the fair value of the
benefits he has conferred on D. The court will estimate these
benefits (which will probably be one-half of the $30,000 annual
salary), and will subtract the damage to D of P's not performing
the second six months.
For example, if UPS delivers a new television to Zoe that she
did not order and she keeps the television and
does not attempt to return it to the company that mistakenly
shipped it to her, a judge could impose a quasi-
contract to force her to pay for the television. Zoe did not
intend to purchase the TV, and the TV company did
not intend to sell her a TV, but since she chose to benefit from
the TV at the company's expense, the court requires her to
reimburse the TV company to make the situation fair.
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Difference between insurance and wagering agreements
Sl.
No.
Basis Contracts of Insurance Wagering agreements.
1 Insurable interest The Assured has an insurable interest
in the subject matter.
There is no interest in the subject
matter, other than that created by
the agreement itself.
2 Interest in protection
of subject matter
Both the parties have such interest
matter.
Only one of the parties is interested
in the protection of the subject
matter.
3 Value of contract Except life insurance, all insurances
are contract of indemnity (whose
value is unknown).
The amount of the contract is fixed.
4 Benefit It benefits the public. It does not benefit anyone
except the
winner.
5 Basis of agreement It is based upon scientific and
actuarial calculation of risks.
It is a gamble or game of chance.
6 Actual amount payable In case of contracts of insurance
except life insurance, the actual
amount payable need not necessarily
be the full amount for which the
property is insured.
In case of wagering agreements, the
actual amount payable is usually
fixed.
7 Beneficial/against the
public policy.
These are regarded as beneficial to
the public policy
These are considered to be against
public policy.
8 Gamble Such agreements do not
tantamount to gambling as they
involve the element of investment
and protection.
Being change oriented, these are
closer to gambling
9 Contract of indemnity General insurance is a contract of
indemnity while life insurance is not.
Wagering agreements are not
contract of indemnity.
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Void Agreement Vs Voidable agreement
A contract that is "void" cannot be enforced by either party.,
The law treats a void contract as if it had never
been formed. A contract will be considered void, for example,
when it requires one party to perform an act that
is impossible or illegal.
A "voidable" contract, on the other hand, is a valid contract
and can be enforced. Usually only one party is
bound to the contract terms in a voidable contract. The unbound
party is allowed to cancel the contract, which
makes the contract void.
BASIS OF DIFFERENCE VOID AGREEMENT VOIDABLE CONTRACT
It is valid when made and
Void ab-intio
It is void from the very continues to remain valid
beginning till it is repudiated by the
aggrieved party.
Which essential element
It is void because an essential It is voidable because the
element of a valid contract is consent of a party is not
of contract is missing
missing free.
It continues to be
Enforceability
It cannot be enforced by any enforceable if the
party aggrieved party does not
repudiate the contract.
A third party who
purchases goods in good
Right of third party
Third party does not acquire faith and for consideration
any rights. before the contract is
repudiated acquires good
title of those goods.
On the expiry of
Even on the expiry of a
reasonable time, it may be
Effect of lapse of come a valid contract, if the
reasonable time, it can never
reasonable time aggrieved party does not
become a valid contract.
repudiate the contract
within reasonable time.
Damage
The question of damages The aggrieved party can
does not arise. claim damages.
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Definition of breach of contract
Generally, it means Violation of any of the agreed-upon terms
and conditions of a binding contract.
Breach of contract means failing to perform any term of a
contract without a legitimate legal excuse. The
contract may be either written or oral. A breach may include not
finishing a job, failure to make payment in full
or on time, failure to deliver all the goods, substituting
inferior or significantly different goods, not insuring
goods, among others. An anticipatory breach may be made by an
act which indicates the party will not
complete the work.
A breach of contract in legal terms amounts to a broken promise
to do or not do an act. Breaches of a contract
are single, occurring at a single point in time, or continuing
breaches. A lawsuit for breach of contract is a civil
action and the remedies awarded are designed to place the
injured party in the position they would be in if not
for the breach. Remedies for contractual breaches are not
designed to punish the breaching party. A contract is
a legally enforceable promise, either made in writing or orally.
However, certain promises must be reduced to
writing in order to satisfy the Statute of Frauds, a rule of
substantive law, not a rule of evidence, that specifies certain
subjects that must be evidenced by a written instrument.
The non-breaching party is relieved of his obligations under the
contract by the other party's breach. Courts will
award damages in the event of a breach, but the intent is not to
punish the breaching party, but rather to put
the other party in the position they would occupy if the
contract had been fulfilled. In cases where money is
inadequate to compensate the aggrieved party, the court may
award specific performance to force the breaching party to fulfill
the terms of the contract.
Definition of anticipatory breach of contract
An anticipatory breach of contract is a failure to live up to a
contract term before the actual time for
performance has arrived. It is often occurs when one party
states an intention not to fulfill or substantially fulfill
a contractual obligation before it is due. Such a repudiation of
contract terms is generally required to be
affirmatively stated. The repudiating party may not later demand
performance under the contract from the other party.
An anticipatory breach of contract will occur in one of the
following situations:
Where there has been a renunciation by a party of their
liabilities under the contract an intention to no longer be bound
by the contract shown by their actions
Where there is an impossibility of performing obligations under
the contract due to their actions
Two types of anticipatory breaches are:
(1) Express repudiation, a clear refusal by a party to perform a
contract.
(2) Implied repudiation, an act of a party that puts the
performance of a contract out of its own power to
perform (such as when a party sells off its tools or other
assets required in performance of the contract).
The result of anticipatory breach is that the other party does
not have to perform his/her obligations and cannot
be liable for not doing so. This is often a defense to a lawsuit
for payment or performance on a contract.
Under the Uniform Commercial Code, which has been adopted in
some form by almost every state, a
repudiation will justify a demand for an assurance of
performance by the non-breaching party. The repudiating
party may withdraw a repudiation without legal consequence
before there has been a material change in
position.
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Most Common Legal Remedy for a Breach of Contract
Contracts are a favorite tool of business people everywhere, as
they lend assurance and definition to
transactions. But what happens when someone doesn't do what they
said they would in a contract? In the legal world, this is called a
"breach," and there are a number of remedies for this
situation.
Remedies in Law
When lawyers talk about "remedies in law," they are talking
about money damages. For breach of contract cases, there are
several different types of monetary remedies:
Compensatory damages: This is the most common breach of contract
remedy. When compensatory
damages are awarded, a court orders the person that breached the
contract to pay the other person
enough money to get what they were promised in the contract
elsewhere. For example, suppose you hire
and pay someone to clean your house for $100, but he is unable
to do it. You search for a new cleaning
service, and the cheapest one you find will clean your house for
$150. If this cost is found to be
reasonable, your first cleaner would have to pay you $150 in
compensatory damages, allowing you to
get your house professionally cleaned as the contract
intended.
Restitution: When a court orders restitution, they tell the
person that breached the contract to pay the
other person back. In the example above, the court would order
the first cleaner to pay you back $100,
since that's what you paid him to clean your house.
Punitive damages: This is a sum of money intended to punish the
breaching party, and is usually
reserved for cases in which something morally reprehensible
happened, such as a manufacturer
deliberately selling a retailer unsafe or substandard goods.
Nominal damages: A court awards nominal damages when there has
been a breach of contract but no
party to the contract suffered any harm.
Liquidated damages: These are damages that the parties agree to
pay in the event a contract is
breached.
Quantum Meruit: A court can award one party payment for what
they deserve for any work that she
performed before the other party breached the contract. For
example, if the cleaner in the example
above had cleaned half the house, and then you decided you
didn't want him to finish, he can demand $50 as quantum meruit.
Translated from Latin, the term means "as much as he deserved."
Remedies in Equity
Equitable remedies are typically awarded when monetary damages
will not properly remedy the situation. They
involve the court ordering the parties to act or to refrain from
acting. Types of equitable remedies include:
Specific Performance: A court decree that requires the breaching
party to perform their part of the
bargain indicated in the contract. For example, if one party has
paid for a delivery of goods, but the
other party did not ship them, a specific performance decree
might require the goods to be properly
delivered.
Contract Rescission: The former contract which is the subject of
dispute is "rescinded" (cancelled), and
a new one may be formed to meet the parties needs. This is a
remedy typically given when both parties agree to cancel the
contract or if the contract was created through fraud.
Contract Reformation: The former contract is rewritten with the
new contract reflecting the parties true intent. Reformation
requires a valid contract to begin with and often is used the
parties had a mistaken understanding when forming the contract.
Offer
An offer is a voluntary but conditional promise submitted by a
buyer or seller (offeror) to another (offeree) for
acceptance, and which becomes legally enforceable if accepted by
the offeree.
An offer (unlike a solicitation) is a clear indication of the
offeror's willingness to enter into an agreement under
specified terms, and is made in a manner that a reasonable
person would understand its acceptance will result
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in a binding contract. Offers normally include a closing date,
otherwise a period of 30 days after the date of
offer is commonly assumed.
The offer can come in the form of a:
Letter
Newspaper
Website
Fax
Email
Behavior
In technical terms, the offer is not really an offer until it is
received by the offeree
An offer can also be revoked or taken back by the offeror at any
time prior to acceptance.
It is also possible to terminate an offer, or take the offer off
of the table completely. There are a few ways this can be
done.
Death of either party
Insanity of either party
Death or destruction of the person or the thing required to
perform the contract terms
The offer can also be terminated if a counter-offer is made by
changing the terms of the original offer.
Acceptance
"An acceptance of an offer is an indication, express or implied,
by the offeree made whilst the offer remains
open, and in the manner requested in that offer of the offeree's
willingness to be bound unconditionally to a
contract with the offeror on the terms stated in the offer."
"... acceptance ... a final and unqualified expression of assent
to the terms of an offer."
"Acceptance means the signification by the offeree of his
willingness to enter into a contract with the offeror on the terms
offered to him by the latter. Without an acceptance there can be no
contract ...."
Types of Acceptance
An acceptance may be conditional, express, or implied.
Conditional Acceptance A conditional acceptance, sometimes
called a qualified acceptance, occurs when a person to whom an
offer has been made tells the offeror that he or she is willing to
agree to the offer provided
that some changes are made in its terms or that some condition
or event occurs. This type of acceptance
operates as a counteroffer. A counteroffer must be accepted by
the original offeror before a contract can be
established between the parties. Another type of conditional
acceptance occurs when a drawee promises to pay
a draft upon the fulfillment of a condition, such as a shipment
of goods reaching its destination on the date
specified in the contract.
Express Acceptance An express acceptance occurs when a person
clearly and explicitly agrees to an offer or agrees to pay a draft
that is presented for payment.
Implied Acceptance An implied acceptance is one that is not
directly stated but is demonstrated by any acts indicating a
person's assent to the proposed bargain. An implied acceptance
occurs when a shopper selects an
item in a supermarket and pays the cashier for it. The shopper's
conduct indicates that he or she has agreed to
the supermarket owner's offer to sell the item for the price
stated on it.
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Consideration
"It is a fundamental principle of contract law that in order to
create a binding contract which the law will recognize and enforce,
there must be an exchange of consideration between the parties.
"Consideration is simply something of value received by a
promisor from a promisee. It can take the form of a right, interest
or benefit accruing to one party, or some forbearance, detriment,
loss, or responsibility, given,
suffered or undertaken by the other .
"If there is no consideration there is no contract; and if there
is no contract, there is nothing upon or from which to found or
create liability.
"The act or promise of one party is, as it were, 'bought' or
'bargained for' by the act or promise of the other; each party
exchanges something of value. To create an enforceable contract
there must be ... 'reciprocal
undertakings'. So, if one party is neither giving anything, nor
is promising to do or give anything, there is no
consideration for the other partys act or promise."
Essentials features of consideration:
1. Must move at desire of promisor if done at instance of third
party or without desire of promisor
not good consideration.
2. May move from promisee or any other person- consideration may
move even from a stranger
contract cannot be enforced by stranger to contract even if made
for his benefit - but stranger to
consideration can sue if party to the contract (privity to
contract).
3. May be an act or abstinence/forbearance or a return promise
act must not be a legal duty to
perform abstaining is consideration in negative form may be
past, present or future one may also
be a return promise (Executory consideration) Forbearance to
sue, compromise of a disputed claim,
composition with creditors is valid consideration.
4. May be past, present or future may be voluntary or at
request.
5. Need not be adequate where consent of the promisor is freely
given, inadequacy of consideration
does not make the contract void adequacy of consideration is for
the parties to consider at the time of
making the agreement, and not for the court when it is sought to
be enforced.
6. Must be real and not illusionary - also must be competent and
of value
7. Must be something which promisor not already bound to do:
should not under pre-existing
legal or contractual obligation performance of public duty by
public servant is not consideration.
8. Must not be illegal, immoral or opposed to public policy must
not be unlawful.
9. Doctrine of privity of contract Only parties to contract can
sue and be sued on the contract
stranger to contract cannot sue even if contract is for his
benefit and he provided consideration
stranger has no right or obligation cannot enforce it.
Contingent Contract
Contingent contract is a contract to do or not to do something
if some event. Collateral to such contract, does
or does not happen. Insurance contract provide the best example
of contingent contracts. The performance of a
contingent contract depends upon the happening or non-happening
of some future event.
Characteristic of Contingent contract
The performance of such contracts depends on a Contingency on
the happening or non happening of the
future event.
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In a Contingent contract, the event must be collateral
incidental to the contract.
The Contingency is uncertain. If the Contingency is bound to
happen, the contract is due to be
performed in any case and is not therefore a Contingent
contract.
Agreements in restraint of trade:
Restraint of trade is a very old legal concept relating to the
right of individuals to do business, or pursue a trade or
profession, freely, without restraint.
Agreement in restraint of trade is defined as the one in which a
party agrees with any other party to restrict his liberty
in the present or the future to carry on a specified trade or
profession with other persons not parties to the contract
without the express permission of the latter party in such a
manner as he chooses. Providing for restraint on
employment in the employment contracts of the employees in the
form of confidentiality requirement or in the form
of restraint on employment with competitors has become a part of
the corporate culture.
Restraint of trade is an issue in non-compete agreements, where
an employee or business owner accepts an agreement
(sometimes for compensation) not to compete with the former
employer or new business owner within a certain area
for a specific period of time. If a court views a non-compete as
unreasonable, it is usually based on the principle that it
constitutes restraint of trade.
For example, an employment contract provision that prohibits a
former employee from setting up a competing
business for 5 years within a 100 mile radius of the former
employer would likely be declared void because it
constitutes restraint of trade. At issue in these contract
situations is what is "reasonable" to protect the former
employer, in this case, from having an employee leave the
company and begin competing with his/her former
employer, against the right of an individual to practice a trade
or profession.
Exception or limitations of agreements in restraint of
trade:
An agreement in restraint of trade is valid in the following
cases:
1. Sale of goodwill:
The seller of the 'goodwill' of a business can be restrained
from carrying on a similar business, within specified local
limits, so long as the buyer, or any person deriving title to
the goodwill from him, carries on a like business therein,
provided the restraint is reasonable in point of time and
space.
Illustrations :
A, after selling the goodwill of his business to B, promises not
to carry on similar business "anywhere in the world."
As the restraint is unreasonable, the agreement is void.
C, a seller of imitation jewellery in London, sells his business
to D and promises that for a period of two years, he
would not deal: (a) in imitation jewellery in England, (b) in
real jewellery in England, and (c) in real or imitation
jewellery in certain foreign countries.
The first promise alone was held lawful. The other two promises,
namely (b) and (c), were held void as the restraint
was unreasonable in point of space and the nature of business
(Goldsoll vs. Goldman).
2. Partners' agreements:
An agreement in restraint of trade among the partners or between
any partner and the buyer of firm's goodwill is valid
if the restraint comes within any of the following cases:
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(a) An agreement among the partners that a partner shall not
carry on any business other than that of the firm while is
a partner.
(b) An agreement by a partner with his other partners that on
retiring from the partnership he will not carry on any
business similar to that of the firm within a specified period
or within specified local limits.
(c) An agreement among the partners, upon or in anticipation of
the dissolution of the firm that some or all of them
will not carry on a business similar to that of the firm within
a specified period or within specified local limits
provided the restrictions imposed are reasonable.
(d) An agreement between any partner and the buyer of the firm's
goodwill that such partner will not carry on any
business similar to that of the firm within a specified period
or within specified local limits, provided the restrictions
imposed are reasonable.
3. Trade combinations:
As pointed out earlier, an agreement, the primary object of
which is to regulate business and not to restrain it, is valid.
Thus, an agreement in the nature of a business combination
between traders or manufacturers e.g., not to sell their
goods below a certain price, to pool profits or output and to
divide the same in an agreed proportion, does not amount
to a restraint of trade and is perfectly valid.
Similarly, an agreement amongst the traders of a particular
locality with the object of keeping the trade in their own
hands is not void merely because it hurts a rival in trade.
But if an agreement attempts to create a monopoly, it would be
void.
4. Negative stipulations in service agreements:
An agreement of service by which a person binds himself during
the terms of the agreement, not to take service with
anyone else, is not in restraint of lawful profession and is
valid. Thus a chartered accountant employed in a com may
be debarred from private practice or from serving elsewhere
during the continuance of service.
But an agreement of service which seeks to restrict the freedom
of occupation for some period, after the termination
of service, is void.
5. 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.