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CORPORATE LAW

Week 2 & 3

Law of Contract
By Muhammad Naveed Chohan

Department of Management Sciences


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Outline
Week 2


Week 3

Formation of Contract Classification of Contracts Discharge of Contract Remedies for Breach of Contract

Contingent and Quasi Contracts Indemnity and Guarantee Bailment and Pledge Contact of Agency

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Week 2
Formation of Contract Kinds of Contract Discharge of Contract Remedies for Breach of Contract

Wednesday, May 02, 2012

Formation of Contract
What is Contract? An agreement enforceable by law is a contract
[Sec. 2 (h) of contract Act 1872]
Contract= Agreement + Enforceable

Every agreement and promise enforceable at law is a contract


[Pollack]

A contract is an agreement creating and defining obligations between the parties


[Salmond]
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Formation of Contract
Concluded Points :
Agreement: Every promise and every set of promises, forming the consideration for each other is an agreement
[Section 2(c)]
Agreement = Promise + Consideration

A proposal when accepted becomes a promise


[Section 2(b)]
Promise = Proposal + Acceptance

Enforceability:

Social Agreements Legal Agreements


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Formation of Contract
Contract
STEP 1 Promise = Proposal + Acceptance

STEP 2

Agreement = Promise + Consideration

STEP 3

Contract= Agreement + Enforceable

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Formation of Contract
Essentials of a Valid Contract:
All agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared void
[Section 10]

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Formation of Contract
Essentials of a Valid Contract:
All agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared void
[Section 10]

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Formation of Contract
Essentials of a Valid Contract :
Agreement Free Consent Capacity of Parties Lawful Consideration Lawful Object Not Expressly Declared Void Legal Relationship Legal Formalities Certainty Possibility of Performance

Wednesday, May 02, 2012

Formation of Contract
Essentials of a Valid Contract :
1. 2. Agreement: There must be two parties Existence of offer and acceptance Legal offer and unconditional acceptance Free Consent: Two or more persons are said to consent when they agree upon the same thing in the same sense
[Section 13]

Consent is said to be free when it is not caused by: (i) coercion, (ii) undue influence, (iii) fraud, (iv) misrepresentation, or (v) mistake
[Section 14]
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Formation of Contract
Essentials of a Valid Contract :
3. Capacity of Parties: Every person is competent to contract who (i) is of age of majority, (ii) is of sound mind and (iii) is not disqualified from contracting by any law
[Section 11]

4.

Lawful Consideration:

Consideration - Price for which promise of another is bought [Pollock] A contract without consideration is void Consideration of an agreement is lawful unless (i) forbidden by law, (ii) it defeats the provision of law, (iii) fraudulent, (iv) involves injury to a person or property, (v) immoral or (vi) opposed to public policy
[Section 23]
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Wednesday, May 02, 2012

Formation of Contract
Essentials of a Valid Contract :
5. Lawful Object: Object of an agreement is lawful unless (i) forbidden by law, (ii) it defeats the provision of law, (iii) fraudulent, (iv) involves injury to a person or property, (v) immoral or (vi) opposed to public policy
[Section 23]

6.

Not Expressly Declared Void: Agreements in restrain of marriage [Section 26] Agreement in restrain of trade [Section 27] Agreement in restrain of legal proceedings [Section 28] Wagering agreements [Section 30]

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Formation of Contract
Essentials of a Valid Contract :
7. 8. 9. Legal Relationship: Intention to create a legal relationship Filing of suit under legal relationship In Commercial transactions parties intend to create legal relationship Legal Formalities: Writing Attestation Witness Registration Certainty: Agreement not certain or being made certain is void [Section 29]
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Formation of Contract
Essentials of a Valid Contract :
10. Possibility of Performance: Agreement to do an impossible act is void [Section 56] Contract to do an act that after formation becomes impossible becomes void [Section 56]

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Classification of Contracts
Contract

According to Validity or Enforceability

According to Formation

According to Performance

Valid Voidable Void Unenforceable

Express Implied Quasi

Executed Executory Unilateral

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Classification of Contracts
Types According to Validity :
Valid Contract: Can be enforced by each of the parties Who fails can be sue by other Void Contract:

A contract which ceases to be enforceable by law becomes void, when it ceases to be enforceable
[Section 2(j)]

Unenforceable Contract: Due to technical effects Illegal contracts

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Classification of Contracts
Types According to Formation :
Express Contract: Offer or acceptance in words Words in written or spoken form Implied Contract: Offer or acceptance Inferred from the acts or conduct of the partitas Quasi Contracts: No express or implied contract Under certain circumstances the law recognizes the existence of contract
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Wednesday, May 02, 2012

Classification of Contracts
Types According to Performance :
Executed Contract: Two or more parties All have performed their obligations Executory Contract: Two or more parties Have yet to perform their obligations arising under contract Unilateral Contracts: Two or more parties One of the parties to a contract has performed his obligation but other party is yet to perform
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Discharge of Contract
When a Contract is Discharged?
A contract is said be discharged or terminated when the rights and obligations created by it come to an end.

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Modes of Discharge of Contract


Discharge of Contract

Discharge by Performance

Discharge by Agreement

Discharge by Subsequent Impossibility

Discharge by Lapse of Time

Discharge by Operation of Law Discharge by Breach

Actual Performance Attempted Performance

Novation Alteration Recession Remission Waiver

Initial Impossibility Subsequent Impossibility

Insolvency Merger Material Alteration Death

Actual Anticipatory

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Modes of Discharge of Contract


Discharge by Performance :
1. 2.

Actual Performance: (Sec. 37) Each party to a contract perform obligations under contract According to terms and condition Attempted Performance/Tender: Tender Promisor offer of performance and promisee does not accept Promisor can file a suit against promisee in case of breach (Sec. 38)
Essentials of a Valid Tender: Unconditional Proper time and Proper Place Opportunity to promisee to check goods Made to an able person
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Modes of Discharge of Contract

Essentials of a Valid Tender:


Made to promisee or his agent Joint promisees, a tender to any one of them Money tender, exact amount should be tender

Discharge by Agreement:
1. 2. Novation: Parties to a contract agree to substitute a new contract Change in terms of contract Change of Parties Both Alteration :

Change in only terms of a contract


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Modes of Discharge of Contract


Discharge by Agreement:
3. 4. 5. Recession: Recession means cancelation Consent not free One party fails to perform Remission: Remission means forgive the claim Whole or in part remission Extend the time of performance Accept any other satisfaction Waiver:

Intentional abandonment of rights Forgoing of right


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Modes of Discharge of Contract


Discharge by Subsequent Impossibility :
1. Initial Impossibility: (Sec.56) Void or Void ab-initio

2.

Subsequent Impossibility: (Sec.56)


After formation becomes impossible
Factors Causing Impossibility of Performance:

Destruction of subject matter Failure of purpose Death or personal incapacity Change of law Declaration of war

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Modes of Discharge of Contract


Discharge by Lapse of Time:
Lapse of time terminates the contract No legal action after the limitation period Limitation Act, 1908 lay down limitation period Limitation for simple contract is 3 years

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Modes of Discharge of Contract


Discharge by Operation of Law :
1. 2. 3. Insolvency: Court declares a person insolvent Rights and duties of such person are transferred to officer of court officer of court is known as Official Receiver Merger : Inferior right merges into a superior right Formation of new contract Discharge of former contract Material Alteration: Alteration without consent Contract is discharged
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Modes of Discharge of Contract


Discharge by Operation of Law :
4. Death: Performance depend on personal skill Death discharge a person from contract

Discharge by Breach of Contract :


1. 2. Actual Breach: Intentional Breach Discharge other person from contract Anticipatory Breach: Express Breach Implied Breach
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Remedies for Breach of Contract


Remedies

Suit for Recession

Suit for Damages

Suit upon Quantum Meruit

Suit for Injunction

Suit for Specific Performance

Kinds of Damages

Ordinary Special Exemplary Liquidated Nominal

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Remedies for Breach of Contract


Suit for Recession: (Sec. 75)
Recession - Right to cancel One party breaks the contract Other party - Aggrieved party file suit for recession of the contract Other party can ask for damages - Court can grant

Suit for Damages: (Sec. 73)


1. Damages - monetary compensation allowed to aggrieved/injured party Aggrieved party file suit for damages due to breach of contract Kinds of Damages: Ordinary Damages:

Direct loss Naturally arises as a result of breach of contract Ordinary damages = Difference in contract price and market price Wednesday, May 02, 2012

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Remedies for Breach of Contract

2. 3. 4.

Kinds of Damages:
Special Damages: Indirect loss Notice to parties Special circumstances Exemplary Damages: Awarded to punish for guilt Monetary loss and disappointment to aggrieved party Examples; Contract to marry, Dishonor of cheque Liquidated Damages: Fixed at the time of formation of contract Should be fair and reasonable
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Remedies for Breach of Contract

5.

Kinds of Damages:
Nominal Damages: Not for punishment and not for compensation No loss to claiming party

Suit upon Quantum Meruit:


Quantum Meruit As much as done A party performed a part of the contract Remaining part was rescinded or become unlawful Party who performed a part can claim remuneration on performed part

Suit for Injunction:


Injunction is granted when damages are not adequate relief Restrain the guilt party from doing
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Remedies for Breach of Contract


Suit for Specific Performance:

when damages are not adequate relief Loss caused by breach of contract
Cases - Granting Specific Performance: Compensation in money is not adequate relief Damages can not be calculated Compensation in money can not be recovered Cases - Not Granting Specific Performance: Damages are adequate relief Performance involves personal skill Where court can not supervise execution Contract is uncertain Contract is inequitable to either party
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Wednesday, May 02, 2012

End of Week #2 Lecture Presentation Thanks for Patience

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