Law Reference PDF - Business Laws & Correspondence

Referencer for Quick Revision Foundation Course Paper-2: Business Laws & Business Correspondence and Reporting A compendium of subject-wise capsules published in the monthly journal “The Cha...

Referencer for Quick Revision Foundation Course Paper-2: Business Laws & Business Correspondence and Reporting A compendium of subject-wise capsules published in the monthly journal “The Chartered Accountant Student” Board of Studies (Academic) ICAI INDEX Edition of Paper Page Subject Students’ Topics No. No. Journal Concepts related to July 2020, entering of contract under 1-9 August 2020 The Indian Contract Act, 1872 Concepts related to performance and breach of January 10-14 contract and special 2021 contract under The Indian 2A Business Laws Contract Act, 1872 July 2021, The Sale of Goods Act, 15-26 December 1930 2021 The Indian Partnership 27-30 August 2022 Act, 1932 – General Nature of Partnership January Limited Liability 31-36 2023 Partnership Act, 2008 September 37-42 General Overview 2021 Sentence Types, Active- 43-48 May 2023 Passive Voice and Direct- Indirect Speech Business Introduction to Basics of 2B Correspondence 49-50 March 2022 Writing and Reporting 50-51 March 2022 Precis writing 52-53 April 2023 Article Writing 53-54 April 2023 Report Writing Formal Letters and Official 55-57 April 2023 Communication BUSINESS LAWS Paper 2(SECTION A): Business Laws This capsule on Paper 2-Section A: Business Laws at Foundation, have been dealt with important concepts related to the formation of the valid contract under the Indian Contract Act, 1872. In this capsule, we have touched upon significant concepts that are required for making valid contract and the related concepts supported with relevant case laws to have conceptual understanding of the subject. This chapter is important from examination perspective as its form base for the understanding of the nature of the contract which constitutes unit 1 of Chapter 1 of the said paper in the Foundation course. Considering this capsule as summarised version of the unit 1 of chapter 1 will certainly benefit the students to recapitulate the important points while studying the subject. concepts related to entering of contract under the Indian Contract Act, 1872 I. Nature of Contract Law defines the term offer/proposal as – When one person signifies to another his willingness to do, or to abstain from doing anything with a view to obtain the assent of that other to such act or abstinence (2) Essentials of the offer/proposal: Essentials of valid Offer/proposal The above situation talks about formation of an agreement. An agreement is the result of a proposal by one party and its acceptance by another with the consideration forming the foundation of any At least two expression of with a view contract. Therefore, such an offer and its acceptance gives rise to parties-offeror willingness of to obtain the right & obligation against each other. & offeree parties ‘to do’ assent of the An Agreement in order to be a Contract, must satisfy the or ‘not to do’ other party conditions as specified under section 10 of the Indian Contract something Act, 1872. Requirement for an agreement to be a contract (3) Mode of offers made by the free consent Words Written Act between parties competent to contract, Oral Offer Conduct for a lawful consideration and with a lawful object, and can be are not hereby expressly declared to be void made by Since section 10 is not complete and exhaustive, so there are certain Omission/Abstinence others sections which also contains requirements for an agreement to be enforceable. Not given by Section 10 but are also considered essentials (4) Classification of Offer of valid contracts Two parties Intention to create legal relationship Counter Standing Fulfillment of legal formalities General Offer Offer Certainty of meaning Offer Possibility of performance Cross Specific Offer (1) Meaning of offer/proposal Offer As offer is the starting point in the making of an agreement. An offer is also called as proposal. Thus, for a valid offer, the party making it must express his willingness 'to do' or 'not to do' something. 28 July 2020 The Chartered Accountant Student 1  BUSINESS LAWS General offer Name of the Facts of the case Decision offer made to public at large and anyone can accept by performing case laws the desired act When he came to know Special/specific offer of the reward, which had been announced in offer made to a specific / ascertained person, & can be accepted his absence, he brought only by that specified person an action against the Cross offer defendant to claim this reward. It was held that 2 parties exchange identical offers in ignorance of each other's since the plaintiff was offer at the same time. It is not binding ignorant of the offer of reward, his act of bringing Counter offer the lost boy did not offeree offers to qualified acceptance of the offer subject to amount to the acceptance modifications and variations in the terms of original offer. Counter- of the offer and therefore offer amounts to rejection of the original offer he was not entitled to claim the reward. Standing / continuing / open offer An offer of continuous nature which remains open for acceptance Boulton Vs. Boulton had taken Held: Jones is not liable over a period of time Jones over the business of to pay for the good. It is one Brocklehurst, a rule of law that offer with whom Jones had Important case laws previous dealings. made to a specific / Jones sent an order for ascertained person can Name of the Facts of the case Decision goods to Brocklehurst, be accepted only by that case laws which Boulton supplied specified person. Carlill Vs. In this famous case, Held, she could recover without informing Carbolic Carbolic smoke Ball Co. the amount as by using Jones that the business Smoke Ball advertised in several the smoke balls she had changed hands. Co. newspapers that a had accepted the offer. When Jones found reward of £100 would be In terms of Sec. 8 of the out that the goods given to any person who Indian Contract Act, had not come from contracted influenza anyone performing the Brocklehurst, he after using the smoke conditions of the offer refused to pay for balls produced by the can be considered to them and was sued by Carbolic Smoke Ball have accepted the offer. Boulton for the price. Company according Until the general offer is to printed directions. retracted or withdrawn, (5) Difference between Offer and Invitation to Offer, and One lady, Mrs. Carlill, it can be accepted by Invitation to Treat used the smoke balls anyone at any time as it is as per the directions of a continuing offer. Case laws Facts of the case Decision company and even then Harvey Vs. In this case, Privy Council Held that the mere suffered from influenza. Facie briefly explained the statement of the lowest Lalman Gauri Dutt sent his Held, he was not entitled distinction between an price at which the vendor Shukla Vs. servant Lalman to trace to the reward, as he offer and an invitation to would sell contained no Gauri Dutt his missing nephew. He did not know the offer. offer. In the given case, implied contract to sell then announced that Section 4 of the Indian the plaintiffs through to the person who had anybody who traced Contract Act states that a telegram asked the enquired about the price. his nephew would be the communication of defendants two questions entitled to a certain a proposal is complete namely, reward. Lalman traced when it comes to the (i) Will you sell us the boy in ignorance knowledge of the person Bumper Hall Pen? and of this announcement. to whom it is made. (ii) Telegraph lowest cash Subsequently when he price. In Lalman case, the The defendants replied came to know of the defendant’s nephew reward, he claimed it. through telegram that the absconded from home. “lowest price for Bumper The plaintiff who was Hall Pen is ₤900”. The defendant’s servant was plaintiffs sent another sent to search for the telegram stating “we agree missing boy. to buy Bumper Hall Pen After the plaintiff had left at ₤900”. However, the in search of the boy, the defendants refused to sell defendant announced the property at the price. a reward of Rs. 501 to The plaintiffs sued the anyone who might find defendants contending that out the boy. The plaintiff they had made an offer to who was unaware of this sell the property at ₤900 reward, was successful in and therefore they are searching the boy. bound by the offer. The Chartered Accountant Student July 2020 29 2 BUSINESS LAWS (8) Acceptance of an offer Case laws Facts of the case Decision General Rule- Offer can be Accepted only by the person or Mac Pherson The owner of the property It was held that this persons to whom it is made Vs. Appanna had said that he would not statement did not indicate accept less than ` 6000/- any offer but indicated Specific Offer-accepted only by that definite person or for it. only an invitation to offer. particular group of persons to whom it has been made Harris Vs. An auctioneer advertised It was held that plaintiff Nickerson in a newspaper that a sale cannot file a suit against General Offer-Accepted by any person by complying with of office furniture will be the auctioneer for the terms of the Offer held on a particular day. his loss of time and Plaintiff (Harris) with the expenses because the (9) Legal rules for a valid acceptance intention to buy furniture advertisement was merely came from a distant place a declaration of intention Absolute and Unqualified for auction but the auction to hold auction and was cancelled. not an offer to sell. The Communicated to Offeror auctioneer (Nickerson) Prescribed Mode does not contract with any one who attends the sale. The auction is only Time limit an advertisement to sell but the items are not put Before the lapse of Offer for sale though persons who have come to the Relevant Case laws auction may have the intention to purchase. Case laws Facts Decision Pharma- The goods were displayed In this case, it was held Felthouse F offered by letter to buy a Held, F could not ceutical in the shop for sale with that display of goods Vs. Bindley nephews horse, saying:” If I succeed as his nephew Society price tags attached on alongwith price tags hear no more about it, I shall had not communicated of Great each article and self- merely amounts to consider the horse mine. ”The acceptance and there Britain Vs. service system was there. invitation to treat and nephew did not reply but he was no contract. Boots Cash One customer selected therefore if an intending told an auctioneer not to sell Chemists Ltd the goods but the owner buyer is willing to that particular horse as he had refused to sell. purchase the goods at a sold it to his uncle. By mistake, price mentioned on the the auctioneer sold the horse. tag, he makes an offer F sued for conversion against to buy the goods. Thus, his nephew. the shopkeeper has the Carlill Vs. In this famous case In case of a general right to accept or reject the same. The contract Carbolic Carbolic smoke Ball Co. offer, it is not necessary would arise only when the & Smoke advertised in several to communicate the offer is accepted. Hence Balls newspapers that a reward acceptance if it is made there was no contract and Co. of £100 would be given to by acting upon the customer had no rights to any person who contracted terms of the offer. sue the owner. influenza after using the smoke balls produced by the Carbolic Smoke (6) Rules as to Valid Offer Company according to printed directions. One Intention to create Legal Relationship lady, Mrs. Carlill, used the smoke balls as per the Certain, Definite and not Vague. directions of company and even then suffered from Expressed or Implied influenza. Here company took the Different from an Invitation to Offer defend that there was no communication of Offer must be communicated acceptance of an offer by Mrs. Carlill and so there was no contract between Offer may be conditional. them. No term of the non compliance amounting to Acceptance Neale Vs. M offered to sell his land It was held that N Merret to N for £280. N replied could not enforce his (7) Acceptance purporting to accept the acceptance because it offer but enclosed a cheque was not an unqualified for £ 80 only. He promised one to pay the balance of £ 200 person to whom Signifies his Proposal is said by monthly installments of the Proposal is Assent thereto to be Accepted £ 50 each. made 30 July 2020 The Chartered Accountant Student 3  BUSINESS LAWS Case laws Facts Decision (12) When is communication of acceptance complete? Brogden vs. Brogden a supplier, sent a Held, that there was As against the Proposer- Metropolitan draft agreement relating no contract as the to the supply of coal to the when put in course of transmission to the Proposer manager had not Railway Co. manager of railway Co. viz, communicated his As against the Acceptor Metropolitian railway for acceptance to the his acceptance. when it comes to the knowledge of the Proposer The manager wrote the supplier, Brogden. word “Approved” on the (13) Communication of acceptance by post same and put the draft agreement in the drawer As against the Proposer- As against the Acceptor of the table Intending to send it to when the letter of when the letter reaches the the company’s solicitors acceptance is posted proposer for a formal contract to be drawn up. By an over sight the draft agreement (14) Acceptance over telephone or telex or fax remained in drawer. Offer is made by instantaneous communication- (10) Rules for Communication of Offer and Acceptance Contract is completed For Valid Offer and Acceptance When the Acceptance is The Contract is made at the Offer must be communicated to the Offeree received by the Offeror, place where the Acceptance is Acceptance must be communicated to the received Offeror (15) When revocation of offer and acceptance is complete (11)When communication of offer is complete? comes to the knowledge of as against the person when it is put into a the person to whom it is made who makes it- course of transmission Communication as against the person when it comes to his of an offer is either by words spoken or to whom it is made- knowledge. complete written, or it may be inferred from the conduct of the parties (16) When a Proposal and Acceptance can be revoked? Relevant Case laws Proposal Acceptance Case laws Facts Decision may be revoked at may be revoked at Lilly Plaintiff delivered Held, the terms were any time before the any time before the White Vs. some clothes to unreasonable and communication of its communication of the Mannuswamy drycleaner for which Plaintiff was entitled acceptance is complete acceptance is complete she received a laundry to recover full value as against the proposer as against the acceptor of the saree from the receipt containing drycleaner. a condition that in case of loss, customer The receipt carries would be entitled special conditions (17)Modes of revocation of offer by to claim 15% of the and are to be treated market price of value as having been duly communicated to the Lapse of Death or Non of the article, Plaintiff customer and therein a Notice of specified Insanity fulfilment Counter lost her new saree. tacit acceptance of these Revoca- or of the of Offer conditions is implied tion reason- Conditions by the customer’s parties able time of Offer acceptance of the receipt The Chartered Accountant Student July 2020 31 4  BUSINESS LAWS PAPER 2(SECTION A): BUSINESS LAWS "This capsule on Paper 2(Section A): Business Laws at the Foundation Level, is in continuation to previous issue of July month of the Student Journal. In that issue, we have covered important concepts related to "Offer and Acceptance". In this issue, we are covering other important requirements necessitated for the formation of valid contract under the Indian Contract Act, 1872. These concepts in summarized forms with supported case laws, will help students to recapitulate important points while revision of the subject." CONCEPTS RELATED TO THE ENTERING OF CONTRACT UNDER THE INDIAN CONTRACT ACT, 1872 I. Consideration (1) Importance of consideration Caselaws Facts Decision Chinnayya An old lady made a It was held that there was No Consideration, Rule of Law No Contract vs. Ramayya gift of her property sufficient consideration to her daughter with for the uncle to recover a direction to pay a the money from the certain sum of money daughter. to the maternal uncle by (2) Meaning of consideration way of annuity. On the same day, the daughter executed a writing in When at the desire favour of the maternal of the Promisor- uncle and agreeing to pay him annuity. The daughter did the Promisee, or any Other Person, not, however, pay the annuity and the uncle sued to recover it. has done or promises to do (4) Suit by a Third Party on an Agreement (Doctrine of Privity abstained from does or abstains or abstain from from doing, or of Contract) doing, or doing something, General rule Such an Act or Abstinence or Promise is called A stranger to a contract cannot sue Consideration for the Promise Exceptions to the said rule (3) Requirements of valid consideration move at the promisee or past or present adequacy of desire of the any other or future. consideration promisor person trusts not be unlawful, other than the real and not immoral, or opposed Promisor’s existing illusory to public policy obligation family Acknowledgement settlement of liability / Estoppel Relevant Case Law Suit can be filed by Third Party in following Caselaws Facts Decision circumstances Durga D (defendant) promised D was not bound to pay Prasad v. to pay to P (plaintiff) a commission as it was covenant Baldeo certain commission on without consideration assignment running of a contract with land articles which would and hence void. be sold through their agency in a market. Market was constructed contract by agent by P at the desire of the C (Collector), and not at the desire of the D (Promisor) The Chartered Accountant Student August 2020 27 5 BUSINESS LAWS (5) Contracts without consideration Case Law Facts Decision Mohori Bibi A, a minor borrowed It was held that a vs. Dharmo R20,000 from B and as mortgage by a minor Das Ghose a security for the same was void and B was not executed a mortgage in entitled to repayment of Conditions Agreements made on his favour. He became money. where account of natural love a major a few months contract and affection later and filed a suit for without Promise to pay time the declaration that the consideration, barred debt mortgage executed by is enforceable Promise to compensate him during his minority Completed gift was void and should be Bailment cancelled. Charity Agency Sain Das vs. Where there was a It was held that the Ram Chand joint purchase by two vendor could enforce purchaser, one of them the contract against the was a minor major purchaser and not the minor Relevant CaseLaw : In Kedarnath Vs. Gorie Mohammad , it was held that if a promisee undertakes the liability on the promise (3) Position of person of sound mind of the person to contribute to charity , there the contract shall be valid. Person who is usually of Unsound Mind but occasionally of Sound Mind II. Competency of parties may make a Contract when he is of Sound Mind. (1) Persons eligible to make a contract Person who is usually of Sound Mind but occasionally of Unsound Mind may not make a Contract when he is of Unsound Mind Major (4) Position of agreements with persons of unsound mind While he is of Unsound Mind While he is of sound mind sound mind Cannot enter into any Can enter into a valid not otherwise Contract contract disqualified Contract entered during Liable for such contracts from this period is altogether contracting Void Cannot be held Liable thereon (2) Law relating to Minor’s agreement/ Position of minor (5) Positions of agreements in case of persons of permanently unsound mind (in case of Idiots) A person who is permanently of unsound mind Agreement No estoppel Minor can is void ab to plead on be admitted initio minority to benefit of Any agreement partnership Cannot enter into and not liable entered is any contract thereon altogether void In case of supply of No ratification necessaries claim to on attaining be reimbursed from (6) Positions of agreements in case of Drunken/Intoxicated majority property of minor person A Sane Person who is delirious from fever or who is so drunk Contract by In case of Fraudulent Guardian Representation of age, cannot contract during such state because under a minor can plead his exceptions are minority but required to cannot understand the terms of a contract, valid contract return the benefit cannot form a rational judgment as to its effect on his interest 28 August 2020 The Chartered Accountant Student 6  BUSINESS LAWS (7) Persons disqualified by law (6) Effect of undue influence contracts by such person are Void. when agreement caused by undue influence- contract is voidable at the option of the party - Alien enemies whose consent was obtained Statutes contract may be set aside disqualify - Foreign ambassadors certain persons - Convicts to enter into - Insolvents Relevant Case Law contract - Corporations In Kirpa Ram vs. Sami-Ud-din Ad. Khan, a youth of 18 years of - Etc. age, spend thrift and a drunkard, borrowed Rs. 90,000 on a bond bearing compound interest at 2% per mensem (p.m.). It was held by the court that the transaction is unconscionable, the rate of III. Free Consent interest charged being so exorbitant. (1) Meaning of consent (7) Fraud In absence of consent- Fraud includes any of the following acts- Agreement is Two or void ab initio suggestion, active promise Any other act or more as to a fact concealment made act fitted to omission persons are they agree upon the which is not of a fact without any deceive as to law said to have same thing true intention specially consented, in the same sense of declared when- performing to be it fraudulent (2) Free Consent (8) By whom and when fraud is said to be exercised? Fraud Undue Influence Misrepresentation Fraud can be committed by- { a party to a contract, or with his connivance or by his agent Consent is said { Coercion to be free Mistake another party thereto or when it is not Act when done his agent, or caused by with intent to induce him to enter to deceive- into the contract (3) Agreement caused by coercion (9) Effects of fraud Committing of any act which is An agreement is forbidden by the IPC said to be caused Threatening to commit any act which Right to by Coercion if is forbidden by the IPC Rescind there is- Unlawful detaining of any property Threatening to detain any property Voidable Remedies Right to contract available performance (4) Consequences of Coercion the agreement is a contract Contract Right to claim voidable at the option of induced by damages the party whose consent Coercion was so obtained. (10) Does mere silence amount to fraud ? (5) Undue influence General Rule- Mere silence as to facts, which is likely to affect the willingness of a person, Contract Relations subsisting between the Parties to enter into a contract, -is no fraud is said to are such that, be induced One of the Parties is in a position to by Undue Dominate the will of the other, and Exceptions-Mere silence as to facts, Influence The Dominant Party uses that position to when- obtain an Unfair Advantage over the other where it is the duty of a person to speak, or his silence is equivalent to speech, -silence amounts to fraud The Chartered Accountant Student August 2020 29 7 BUSINESS LAWS Relevant Case Law (14) Types of mistake Caselaws Facts Decision Mistake Word vs. H sold to W some Held there was no fraud. Hobbs pigs which were to his knowledge suffering from fever. The pigs were sold Mistake of Law Mistake of Fact ‘with all faults’ and H did not disclose the fact of fever to W. Mistake of Bilateral Peek vs The prospectus issued Held the suppression of Indian Law Mistake Gurney by a company did not truth amounted to fraud. refer to the existence of a document disclosing Mistake of Unilateral liabilities. The impression Foreign Law Mistake thereby created was that the company was a prosperous one, which (15) Bilateral Mistake actually was not the case. Regier V. A broker was asked to buy Held that the client was As to Subject Campbell shares for client. He sold entitled to avoid the Matter Staurt his own shares without contract or affirm it with disclosing this fact. a right to claim secret profit made by broker on the transaction since the relationship between the As to the As to the As to the As to the As to the As to the broker and the client was Existence Quantity Quality Price Identity Title relationship of utmost good faith. (11) Misrepresentation (16) Unilateral Mistake When a person positively states that a fact Where only A Contract is not Voidable merely is true when his information does not one party to the because it was caused by one of the warrant it to be so agreement is parties to it being under a Mistake as to under a mistake Matter of Fact. When there is a breach of duty by a person without intention to deceive which brings an advantage to him, and loss to the other; The agreement is void where a unilateral mistake relates to the- When a party causes the other party to Exception, Identity of the person contracted the agreement to make a mistake as to the with, or subject matter. Nature of the contract. (12) Consequences of misrepresentation (17) Effects of mistake Voidable Nature of Mistake and the nature of Agreement contract In Bilateral Mistake - The agreement is void. In Unilateral Mistake - Remedies As to identity of the person The agreement is void. available contracted with As to the nature of The agreement is void. contract. As to other matter. The agreement is not void. Right to Rescind Right to insist upon the contract performance (18) Remedies under mistake (13) Mistake Obligation of He must restore any benefit received by When both the parties aggrieved party him under the contract to the other party to an agreement - from whom the benefit had been received [Section 64]. Obligation of The person to whom money has been paid other party or anything delivered by mistake must are under to a matter of fact the agreement is repay or return it. [Section 72] a mistake essential to the altogether void. agreement 30 August 2020 The Chartered Accountant Student 8  BUSINESS LAWS (19) Differences IV. Legality of Object and Consideration Coercion and Undue influence (1) When there is an unlawful object & unlawful consideration in an agreement, its effect Basis of difference Coercion Undue Influence Nature of action It involves the It involves moral or Consideration or Object of an agreement is unlawful, if- physical force or mental pressure. forbidden defeats If it is involves immoral threat. by law provision fraudulent or implies or Involvement of It involves No such illegal act of any law injury to a opposed criminal action committing or is committed or a person or to public threatening to threat is given. property policy commit any act of another forbidden by The The The The The Indian Penal Code Agreement agreement agreement agreement agreement or detaining or is Void. is void. is void. is void is void. threatening to detain property unlawfully. (2) Agreements against Public policy R e l a t i o n s h i p It is not necessary Some sort of between parties that there must relationship between Interfering with Trading with the Course of Brokerage be some sort the parties is Enemy Justice Contracts of relationship absolutely necessary. between the parties. Exercised by Coercion need not Undue influence Restraint whom proceed from the is always exercised Stifling Creating of Legal promisor nor need it between parties to Prosecution Monopoly Proceedings be directed against the contract. the promisor. It Maintenance Sale/Transfer of can be used even Restraint of and Public Offices by a stranger to the Champerty and Titles. Trade contract. Enforceability The contract is Where the consent voidable at the is induced by undue Restraint Restrained of Personal of Parental Restraint of option of the party influence, the Marriage Liberty Rights whose consent has contract is either been obtained by voidable or the V. Agreements which are expressly declared void the coercion. court may set aside or enforce it in a (1) Law declares following agreement to be either illegal or void modified form. Fraud and misrepresentation Agreements by Agreements in Agreements, the Incompetent Restraint of Legal Meaning of which Basis of difference Fraud Misrepresentation Parties Proceeding is not Certain Intention To deceive the other There is no such party by hiding the intention to deceive Reciprocal truth. the other party. Agreements made Agreements Promises to do under a Mutual in Restraint of Knowledge of The person making The person making things Legal Mistake of Fact Trade and also Illegal truth the suggestion the statement believes that the believes it to be statement is untrue. true, although it is Agreements, the Agreements Agreements not true. Consideration or made without Contingent on Object of which Recission of The injured party The injured party is is Unlawful Consideration Impossible Events the contract can repudiate the entitled to repudiate and claim for contract and claim the contract or sue damages damages. for restitution but Agreements Agreements in Restraint of in Restraint of Agreements by cannot claim the way of wager damages. Trade Marriage Means to The party using Party can always discover the the fraudulent act plead that the (2) Consequences of agreement expressly declared void truth cannot secure or injured party protect himself had the means to Agreements by saying that the discover the truth. expressly injured party had declared void Void- ab- initio means to discover / illegal by the the truth. Contract Act The Chartered Accountant Student August 2020 31 9 BUSINESS LAWS CA FOUNDATION - PAPER 2 (SECTION A) - BUSINESS LAWS This Capsule deals with the significant concepts covered under units 4, 5 & 6 of Chapter 1 of the Study material of Foundation Paper 2 - Section A -Business Laws. It is in continuation to units 1, 2, & 3 of the chapter 1 published earlier in July 2020 and August 2020 edition of the Student Journal. This capsule itemize significant concepts related to “Performance and Breach of Contract”, and “Special Contracts discussing Contingent and Quasi Contract under the Indian Contract Act, 1872. In order to have understanding of the related concepts, this capsule will help to revise and retain the important facet of the legal provisions. CONCEPTS RELATED TO PERFORMANCE AND BREACH OF CONTRACT AND SPECIAL CONTRACT UNDER THE INDIAN CONTRACT ACT, 1872 I. Performance of Contract (1) Meaning of Performance (5) Who may perform the contract A contract is said Legal to be performed Promisor himself Promisor’s Agent -Either perform, or Representatives when the parties to the -Offer to contract perform their promises Third persons Joint promisors (2) Types of performance of the Contract Actual performance Attempted Performance (6) Liability of joint promisor Where a Promisor, Where a Promisor, made an offer of made an offer, performance, to the Promisee, General rule-If two or more persons have made a joint promise, to Promisee, and the offer has not been all of them must jointly fulfill the promise. and the offer has been accepted by the Promisee accepted by the Promisee After death of any one of After the death of the last them- survivor- (3) Effects of the performance of the contract his legal representative jointly the legal representatives of all with the survivor/survivors the original co-promisors Actual Liability of the Promisor comes to an end with the performance of the Act, and Performance there remains nothing to be done by him (7) Rules as to time and place for performance of the promise Case where Rule as to performance Time not specified Within the reasonable time Attempted the Promisor is not responsible for non- Time specified but promise During the usual business Performance performance, and have right to claim. is to be performed without hours on that particular day promisee’s application Time specified but promise is The promisee must apply for (4) Who may demand performance of contract to performed on promisee’s performance at a proper place application and within usual business hours Legal Place not specified The promisor must apply Third Joint Promisee Represent- Party Promisees to the promisee to appoint ative a reasonable place for the performance and to perform the promise at such place. Manner for performance The promise must be performed in the manner and at the time prescribed by the 30 January 2021 The Chartered Accountant Student promisee. 10  BUSINESS LAWS (8) Is time an essence of Contract? (12) Supervening impossibility Cases, where- When time is essence of Case Effects contract Where an act becomes The contract becomes void when impossible after the contract is the act becomes impossible. Parties have Expressly agreed Time is considered to be essence made of Contract Where an act becomes The contract becomes void Non-performance at the Time is considered to be unlawful by reason of some when the act becomes specified time results in an essence of Contract event beyond the control of unlawful. injury to the Party promisor Where the promisor alone Promisor must compensate Nature and necessity requires Time is considered to be knows about the impossibility the promisee for any loss the performance of the essence of Contract which might have suffered on Contract within the specified account of non-performance time of the promise. Where an agreement is Any person who has received (9) Consequences of Non-performance within the specified time discovered to be void or where any benefit under such a contract becomes void agreement or contract is Cases where time is essence Cases where time is not bound to restore it or to make of the contract essence of a contract compensation to the person from whom he received it. Contract becomes Voidable Contract does not become at the option of the Promisee voidable at the option of the Promisee (13) Discharge of a contract If performance beyond the The Promisee is entitled Discharge by performance specified time is accepted to claim compensation for by the Promisee- any loss occasioned to him The Promisee cannot claim by non-performance of the Discharge by mutual agreement compensation for any loss promise at the agreed time. caused by non-performance at the agreed time, unless Discharge by impossibility of performance at the time of acceptance ,he has given a notice to the Promisor of his intention to Discharge by lapse of time claim compensation. Discharge by operation of law (10) Impossibility of performance A contract to do an act which, after the contract Discharge by breach of contract is made, becomes- impossible, or, unlawful by reason of some event which the promisor II. Breach of contract could not prevent, - becomes void when the act (1) When breach of contract take place? becomes impossible or unlawful and parties discharged from performance. Breach of contract occurs, if any party- makes Fails to perform it impossible refuses, or his part of the By his act (11) Impossibility existing at the time of contract or Initial to perform his contract, or Impossibility obligation Case Effects If the impossibility is known to Such an agreement is void-ab- (2) Effects of the Breach of Contract the parties initio If unknown to the parties Such an agreement is void on the ground of mutual mistake The aggrieved party is If known to the promisor only Such promisor must gets a right to proceed relieved from performing against the party at fault compensate for any loss his obligation, and which such promisee sustains through the non performance of the promise. The Chartered Accountant Student January 2021 31 11 BUSINESS LAWS (3) Types of breach of contract Case laws Facts Decision Breach of contract Gibbons A business man whose In the case, it was held Vs. West credit has suffered will that a non-trader cannot Minister get exemplary damages get heavy damages in Bank even if he has sustained the like circumstances, Anticipatory breach Actual breach no pecuniary loss. unless the damages are alleged and proved as special damages. breach occuring before time fixed Refusal to perform for performance has promise on the arrived scheduled date III. Special types of Contract Contingent (4) Liability for Damages Quasi-Contracts Contracts Ordinary damages Rules Relating to Cases deemed as Pre-fixed Special Enforcement of Quasi -Contracts damages damages Contingent Contracts Damages for Vindictive or (1) Contingent Contract deterioration exemplary caused by delay damages Contingent contract is Nominal damages (5) Remedies Available a contract to do or if some event, collateral not to to such contract, does or Rescission of Contract do something, does not happen. Suit upon Quantum Meruit (2) Essentials of a Contingent Contract Suit for Specific Performance (a) Dependence on future event Suit for Injunction Dependence on a future event The performance of a contingent contract is Relevant case laws made dependent upon the happening or non- happening of some event. A contract may be Case laws Facts Decision subject to a condition precedent or subsequent. Hadley Vs. The crankshaft of P’s The court held that P Baxendale flour mill had broken. He was entitled only to (b) 'Event' referred is collateral to the contract gives it to D, a common ordinary damages and carrier who promised to D was not liable for the deliver it to the foundry loss of profits because Collateral in 2 days where the new the only information Event shaft was to be made. The given by P to D was that The event on which the mill stopped working, the article to be carried performance is made D delayed the delivery was the broken shaft of a to depend, is an event of the crankshaft so the mill and it was not made collateral to the contract. mill remained idle for known to them that the another 5 days. P received delay would result in the repaired crankshaft 7 loss of profits. days later than he would (c) The event must be uncertain have otherwise received. Consequently, P sued D Uncertain Event for damages not only for the delay in the delivering of the broken part but also for loss of profits The contingent event must be uncertain and should suffered by the mill for not be the mere will of the promisor. not having been worked. 32 January 2021 The Chartered Accountant Student 12  BUSINESS LAWS (3) Rules regarding Contingent contracts Rule 4 Rule 5 Rule 6 Rule 1 Rule 2 Rule 3 Contract Contracts Agreement Enforcement Enforcement Contract contingent upon contingent contingent of contracts of contracts contingent the happening upon the non- on impossible contingent contingent on upon the future of an uncertain happening of event. on an event an event 'not- conduct of a specified event an uncertain 'happening’ happening’ living person within a fixed specified event time within a fixed time (a) Rule 1 regarding contingent contracts (e) Rule 5 regarding contingent contracts Enforcement of contracts contingent on an Contract contingent upon the non-happening of an event 'happening‘ uncertain specified event within a fixed time; Where a contingent contract is made to do or not to do Such contract can be enforced by law if before the anything if an uncertain future event happens, expiry of fixed time- Such event does not happen ,or it cannot be enforced by law unless and until that It become certain that such event will not happen. event has happened. If the event becomes impossible, such contracts become void. (f) Rule 6 regarding contingent contracts (b) Rule 2 regarding contingent contracts Agreement contingent on impossible event. Enforcement of contracts contingent on an event 'not- A contingent agreement to do or not to do anything, if happening‘ an impossible event happens, is void. The impossibility of the event may be or may not be known to the parties to the agreement at the time Where a contingent contract is made to do or not do when they entered into it. anything if an uncertain future event does not happen it can be enforced only when the happening of that event becomes impossible and not before. IV. Quasi-Contract (1) Meaning Quasi Contract (c) Rule 3 regarding contingent contracts Contract contingent upon the future conduct of a In the living person absence upon person for of a Where, the future event on which a contract is contract. the benefit contingent is the way in which a person will act at an An of another. unspecified time. obligation In such a case, the event shall be considered to have imposed by become impossible when such person does anything law. which renders it impossible that he should so act within any definite time or otherwise than under further contingencies. (2) Features of a Quasi- Contract Imposed by Law (d) Rule 4 regarding contingent contracts Obligation is a duty and not the promise of a party The right is always a right to money Contract contingent upon the happening of an uncertain specified event within a fixed time; Right is available against specific person Such type of contracts become void if before the expiry of fixed time- Suit for breach may be filed same as of a complete contract Such event does not happen, or Such events becomes impossible. The Chartered Accountant Student January 2021 33 13 BUSINESS LAWS (3) Difference between quasi contracts and Contingent (d) Type iv of quasi-contracts contract Basis of Quasi- Contract Contingent Contract A person who finds goods distinction Responsibility belonging to another, and takes of a finder them into his custody Essential The essentials for the Present of goods there such person is subject to the for the valid formation of a valid same responsibility as a bailee contract contract are absent Obligation Imposed by law Created by the consent of the parties (e) Type v of quasi-contracts Liability for money paid or thing delivered (4) Types of quasi-contracts by mistake or under coercion A person to whom money has been paid, or anything i Claim for necessaries supplied to persons incapable of delivered by mistake, or contracting under coercion must repay or return it. ii Right to recover money paid for another person (5) Remedy on breach of quasi-contract iii Obligation of a person enjoying benefits of non-gratuitous act When the there the injured party is entitled iv Responsibility of a finder of goods obligation to receive the compensation same created by the as defaulted party had contracted quasi-contract is to discharge as it had broken his Liability for money paid or thing delivered by mistake or not discharged- contract. v under coercion (a) Type i of quasi-contracts Relevant case laws If necessaries are supplied to Case laws Facts Decision Claim for a person who is incapable of necessaries ShyamLal ‘S’ a government servant The appeal was contracting, e.g. minor or a person supplied to vs. State of was compulsorily retired decided in favour of of unsound mind- persons U.P by the government. He the government and ‘S’ the supplier is entitled to claim incapable of filed a writ petition and was directed to return their price from the property of contracting- obtained an injunction the salary paid to him such a person. against the order. He was during the period of reinstated and was paid reinstatement salary but was given no (b) Type ii of quasi-contracts work and in the mean time government went on appeal. Right to recover money paid for another person Hollins vs. H’ picked up a diamond Held that ‘F’ must return A person who has paid a sum of money which another Howler L. R. on the floor of ‘F’s shop the diamond to ‘H’ as he is obliged to pay- & H. L., and handed over the was entitled to retain Such person is entitled to be reimbursed by that other same to ‘F’ to keep till the goods found against person. the owner was found. In everybody except the spite of the best efforts, true owner. Provided, the payment has been made by him to the true owner could protect his own interest not be traced. After the lapse of some weeks, ‘H’ tendered to ‘F’ the lawful (c) Type iii of quasi-contracts expenses incurred by him and requested to return Obligation of a person enjoying benefits of the diamond to him. ‘F’ non-gratuitous act refused to do so. Such an obligation/right to recover arises “where a Trikamdas T’ was traveling without The suit was decreed in person lawfully does a