Legal Env

7/29/2019 Legal Env.

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Contract Law

Lecture-07:Offer, Acceptance &Consideration


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What is Contract......?


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Definition:

Sec-2(h) of Contract Act, 1872 provides that~Acontract is an agreement which isenforceable by law. Therefore in a contractthere must be~i) an agreement &ii) the agreement must be enforced by law.

A contract is an agreement giving rise toobligations which are enforced orrecognized by the law.

-[Treitel

Example: X says to Y,Will you buy my house for Tk 3lacs?This is an offer. If Y says,Yes, the offer is acceptedand a contract is formed.

Note: [Every contract is an agreement but allagreements are not contract]


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Essential elements of a Contract

Offer & Acceptance

Lawful consideration

Intention to create legal relationship

Capacity of parties

Free consent

Legality of object

Certainty

Possibility of performance

Void/Valid agreements

Writing Registration & legal formalities

Note:

[For the essential elements of a

Contract, please see the examples from: Page13-15, Sen & Mitra, 25th Edition (2006)]


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Contract classified in 4 broad divisions

Method of Formation

i) Implied Contract: ..... from the act,the conduct of the parties and/or the courseof dealing between them (i.e.....

ii) Expressed Contract: ..... expressedin words spoken or written (i.e.....

iii) Quasi Contract: ..... when one

person obtains a benefit at the expense ofanother and the circumstances are such thathe ought equitably to pay for it, the law willcompel payment, even though

these is nocontract between the parties by whichpayment is promised (i.e.....


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Time of Performance

Executed: There are contractswhere the party perform theirobligations immediately, as soon asthe contract is formed (i.e....

Executory: The obligations of the

parties are to be performed at alater time (i.e....


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Legality or validity of the Contract

Void An agreement not enforced bylaw (i.e.- an agreement with a minor).

Voidable An agreement which is notenforceable by law and can be avoided

or enforced at the option of one or moreof the parties (i.e.- an agreement madewithout consideration: An agreementunder coercion).

Illegal- An agreement which is againstthe law (i.e. an agreement to kill a man).

Valid- an agreement which satisfies all

the essential elements of a contract


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The Parties of the Contract

Unilateral-

Bilateral-

Multilateral-


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What is an Offer...?


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Definition~An offer is anexpression of willingness to contract

made with the intention (actual orapparent) that it shall becomebinding on the offeror as soon as it isaccepted by the person to whom it is

addressed.

-Treitel


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What is Proposal......?


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An offer involves the making of aproposal. The term proposal is defined inthe Sec 2(a) of The Contract Act, 1872 as:

When one person signifies to another hiswillingness to do or to abstain from doinganything, with a view to obtaining theassent of that other to such act orabstinence, he is said to make a proposal

- A proposal is also called an offer.The promisor or the person making theoffer is called the Offeror. The person towhom the offer is made is called thePromisee/ Offeree.

Promisor/ Promisee/

Offeror Offeree


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What is Invitation to Treat....?


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An invitation to treat is made at

a preliminary stage in themorning of an agreement.

The court looks at both thewords used and surrounding

circumstances to determine thereal intention of the parties.


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Offer Vs Invitation to Treat

- Whether real intention...............?

- It is not an offer unless it was made with theintention that it should be binding as soon as theperson to whom it was addressed communicateshis assent.

- Absence of distinct party

Example:

i) Display of goods in shop invitation to treat

ii) Advertising invitation to treat

iii) Ticket offer

iv) Auction Sale- invitation to treat

iv) Tenders invitation to treat


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Examples with Explanation:

i) Display of goods in shop:

The issue is whether the display of goods inshops, on shelves or in the window with a pricetag attracted is an Offer or an Invitation toTreat....?

- If it is an offer, then the customer can accept it by

indicating his desire to buy the item and the shopkeepermust then sell it to him at the stated price.

- If it is an invitation to treat, offer is made by thecustomer in seeking to by the item, and the shopkeepercan accept or refuse the offer as he whishes.

ii) Advertising invitation to treatWhether or not advertisements can amount tooffers depend to a large extent on whether thereare bilateral or unilateral, that is capable ofacceptance by one or a limited number ofpersons or open to all the world to accept.


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iii) Ticket An offer

iv) Auction Sale- invitation totreat: Because, the call for bids is arequest for offer, so it is an invitationto treat.

v) Tender invitation to treat

Because, it is a request by theowner of the goods for offers topurchase them, so it is an invitationto treat.

T f Off


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Types of Offer

Unilateral

Bilateral

Multilateral


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Unilateral offer

[Carlill v Carbolic Smoke Ball Co Ltd]

The defendant issued an advertisement promising topay 100 to any person who used as prescribedcarbolic smoke balls made by them, and then caughtinfluenza. They stated that they had deposited1,000 with their banks showing their sincerity in thismatter.

The plaintiff used the smoke balls, caught influenzaand claimed her 1,00. The defendants claimed, interalia, that she was not entitled to payment because

their advertisement had not amounted to an offer.

Decision~

It was held that this advertisement did constitute anoffer and the defendants had indicated their intention

to be bound by the deposit with their bankers.


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Rules regarding Offer

The Contract Act contains various rules regarding offer orproposal. They can be summed up as follows~

i) An offer may be implied, expressed or quasi from thecircumstances.

ii) An offer may be made to a definite person: to somedefinite class of persons: or to the world at large.

iii) Legal relationship is required

iv) The terms of the offer must be certain, definite,unambiguous and not vague.

v) A mere statement of intention is not an offer.

vi) An offer must be communicated to the offeree.

vii) An offer may be conditional.

viii) Contract ideally should be printed.

Note: [For the rules regarding Offer, please see theexamples from: Page 18-22, Sen & Mitra, 25th Edition

(2006)]


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What is Acceptance.?

-An acceptance is a final andunqualified consent of the terms ofan offer. Unless it can be shown thatthere was such consent, then thereis no contract.


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Who can Accept....?

Answer~An offer can be accepted only by the

person or persons for whom the offer isintended. An offer made to a particularperson can only be accepted by himbecause he is the only person intended to

accept.


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What is Consideration...?


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Definition:

Consideration is an essential element in acontract. Subject to certain conditions, anagreement is not enforceable unless each

party to the agreement gets something. Thissomething is called consideration. It is usedin the sense of quid pro quo i.e. something inreturn.


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Example~

i) P agrees to sell a house to Q forTk.80,000/. For Ps promise/offer, theconsideration is Tk.80,000/. For Qspromise/acceptance, the consideration isthe house.

ii) X promises not to file a suit against Y, ifY pays him Tk.100/ by a fixed date. Theforbearance of X is the consideration for

Ys payment.


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Rules regarding AcceptanceThe acceptance of an offer to be legallyeffective must satisfy the following

requirements~ It must be an absolute and

unqualified acceptance of all theterms of the offer.

Conditional acceptance- Anacceptance with a variation is noacceptance. It is simply a counterproposal/offer.

Contracts subject to condition-....rights and obligations may bedependent upon the happening ofa particular event.


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Clarification.Seeking clarificationof an offer neither amounts to theacceptance of the offer nor to the

making of a counter offer.

The acceptance must be expressedin some usual or reasonablemanner.

Mental acceptance or un-communicated assent does notresult in a contract.

The mode of acceptance-.....wherethe offeror prescribes a particularmode of acceptance, the offereemust follow that particular mode of

acceptance.


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Time of acceptance-....If the offerorprescribes a time, the acceptancemust be done within that time.

When acceptance is complete....?

Before Offer-... acceptance must

not be given before the offer.The acceptance must be madewhile the offer is in force.

Note: [For the rules regardingAcceptance, please see the examplesfrom: Page 23-26, Sen & Mitra, 25th

Edition(2006)].


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Problems of Acceptance

There are 6 ways where problem of

Acceptance frequently occurs~

i) Counter offer

ii) Request for information

iii) The battle of form

iv) Acceptance in ignorance of an offer

v) Motive for the acceptance

vi) Classification of implied terms


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Explanations: Acceptance~

i) Counter offers In order to create a bindingagreement, the offer and acceptance mustmatch. The offeree must accept all the terms ofthe offer. It is his reply to an offer, the offereeintroduces a new term or terms, or varies theterms of the offer, then that reply cannot amount

to an acceptance. Instead, the reply is treated asan offer itself. A counter offer which the originalofferor is free to accept or reject.

ii) Request for information If the offeree is

merely seeking further information beforedeciding whether to accept an offer, or enquiringas to whether the offeror will modify his termsthen he is not necessarily meaning a counteroffer.


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Iii) Acceptance in ignorance of an offer:It would seem illogical to consider such anacceptance to be valid, as it ignores the requirement

of intention on the part of the offeree.

iv) Motive for the acceptance-A motive other than accepting the offer if it arises,

then whether his act amounts to a validacceptance.....?

Answer~Yes; Patterson J said - We can not go into theplaintiffs motives.


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V) Clarification of implied terms

The reply will not amount to a counter

offer if those terms would in any case, beimplied into the offer.

In other words~

The seeking clarification of offer neitheramounts to the acceptance of the offer nor

to the making of a counter offer.

Vi) Th b ttl f f Th l th t


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Vi) The battle of forms The rule thatoffer and acceptance must correspond witheach other gives rise to problems where eachparty wants to contract on the basis of

standard terms and these terms differ, which iscalled tug of war. The principles of lawwhich emerge from this principle are~

01. Where the contracting parties form acontract which purports to be on the terms and

conditions of both parties and those terms andconditions are at variation then-

i) If the variation is insignificant, the offeree can imposethe variation without drawing the offerors attentionspecifically to it.

ii) Where there is a difference which is so significant aswould affect the price, the offeree can not takeadvantage of it unless he clearly draws it to the attentionof the offeror.

02) Where a counter offer is accepted on itsterms, then the original offer becomes totallyvoid.


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Contract Law

Lecture-08: Acceptance &Consideration

C i ti f Off /A t


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Communication of Offer/Acceptance

An offer/acceptance can be communicated~

- by conduct- by word of mouth

- by writing ..

Sec-4 - The communication of aproposal/an offer is complete when it comesto the knowledge of the person to whom itis made.

Sec-5 - An acceptance can be revoked anytime before the acceptance comes to theknowledge of the proposer but notafterwards.

A t


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AcceptanceThe General rule is that~ an acceptance mustbe communicated to the offeror, until and

unless the acceptance is so communicated, nocontract comes into existence.

Exception to the GR~The general rule as to acceptance must does

not, or is modified in the following areas-

i) Where the ofteror expressly or impliedlywaives the requirement that acceptance to be

communicated. It usually happens in unilateralcontract.

ii) It was communicated to the offeror but was not received


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ii) It was communicated to the offeror but was not receivedor heard by the offeror as a result of his own fault oromission.Example; [This would be the case in the example given by LordDenning MR in Entores v Miles Far East Corporation if the listeneron the telephone does not catch the words of acceptance butnevertheless does not ask for them to be repeated].

iii) Where the acceptance is communicated to the offerorsagent and the agent has authority to receive thatacceptance on behalf of his principal.

iv) Where the postal rule applies, in which case theacceptance can be effective before it is in fact received bythe offeror.

v) In Bloxhams case it is mentioned that~ The offerorknows of the acceptance and hence there can be a validcontract, even though the acceptance was not brought to

his attention by the offeree.

vi) Where the acceptance is communicated to the offeror bya person other then the offeree, these will be no contract ifthat third party had no authority to do act on behalf of theofferee.


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Postal RuleDefn: Acceptance is communicated

when the offeree posts the letter ortelegram. Where acceptance is bypost, there are 3 possible momentswhen that acceptance could be

completed~

i) When the letter is posted by theofferee.

ii) When the letter it delivered to theofferor.

iii) When the letter is actually brought to

the attention of the offeror.

Ch t i ti


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Characteristics~

-Giving a letter to an unauthorized person will

not amount to acceptance of an offer:

-Telegram: Postal rule is applicable.

-Telephone: the offer and acceptance must beaudible, heard and understood.

-Telex/Fax /Tele-printer: Postal rule does notapply, in that case the words written in theagreement must be distinct and clear. If the

printer/receiver machine of the offeror is out oforder, in that case the offeree is not responsible.

-E-mail: ..........?

t b C i t d ?


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When it is assumed to be Communicated?

Method TimeBy Post (EMS) 3 days

Qurier Service 3 days

Telegram 3 daysTelex/Fax/E-mail Next day 5.00 pm

Telephone Audible, heard-

& understood


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Can Silence be an Acceptance.....?


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Answer~

An offeree who does nothing inrespect to an offer is not bound bythe terms of that offer.

In other words:

The offeror can not, in other words,

impose silence as acceptance by theofferee.


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Can an offeree withdraw his acceptance, after it

has been posted by a letter communication,which reaches the offeror before theacceptance.................?


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Answer~No clear authority in English law,

But in Indian law, May be possible.

R ti /T i ti f ff


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Revocation/Termination of an offer

An offer continues in existence, capable of

acceptance unit it is brought to an end.There are 6 ways in which this can occur~

i) By Notice

ii) Refusal/Rejection by the offeree

iii) Lapse of time/ Expiry of reasonable time

iv) Occurrence of a terminating condition

v) Death

vi) Insanity, incapacity, Insolvency orimpossibility.

Note: [For the rules regarding Revocation, please

see the examples from: Page 29-31, Sen & Mitra,25th Edition(2006)]

Communication of Revocation


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Communication of Revocation

Bilateral Contract- The revocation of the offer must be communicated to the

offeree (s).- It must be shown that the offeree was actually aware of therevocation.

Unilateral Contract- Once the offeree has commenced performance of the actthat constitute acceptance, the offer can no longer be revoked

- But until that act has been completely performed, the offerhas not been accepted so as to form a binding contract.

Example~It was declared by English Channel (EC) Authority that who soever crosses EC, he would be rewarded 1,000. In thissituation, if someone tries to cross EC, the offer can not berevoked. On the other hand, if the offeree can not cross theEnglish Channel, then it is to be assumed that the contracthas not been accepted so as to form a binding contract.


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What is Consideration...?

Definition:


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Definition:Consideration is an essential element in a contract.Subject to certain conditions, an agreement is notenforceable unless each party to the agreement gets

something. Thissomethingis called consideration. Itis used in the sense of quid pro quo i.e. something inreturn.

Sec-29(d) of the Contract Act defines

consideration as follows~When at the desire of theofferor, the offeree or any other person has done orabstained from doing, or does or abstains fromdoing, or promises to do or to abstain from doing,something, such act or abstinence or promise is

called a consideration for the promise.

In the famous English case [Currie Vs Misa]Consideration was defined as~ Some rights,interest, profit or benefit accruing to one party or

some forbearance, detriment, loss or responsibilityiven suffered or undertaken b the other.


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Example~

i) P agrees to sell a house to Q for

Tk.80,000/. For Ps promise/offer, theconsideration is Tk.80,000/. For Qspromise/acceptance, the consideration is

the house.

ii) X promises not to file a suit against Y,if Y pays him Tk.100/ by a fixed date.

The forbearance of X is the considerationfor Ys payment.

Principles of Consideration


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Principles of Consideration

There are 4 basic principles of

consideration~

i) Consideration must move from theofferee.

ii) Consideration must be real: it mustno be sham or illusory.

iii) Consideration must be sufficient, but

need not be adequate.

iv) Consideration must not be past.

iv) Consideration must not be past


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iv) Consideration must not be past

Exceptions~

i) Previous RequestIf the promisor has previously asked the other party toprovide goods or services, then a promise made afterthey are provided will be treated as binding

ii) Business Situations

If something is done in a business context and itis clearly understood by both sides that it willbe paid for, then past consideration will bevalid.

iii) The Bill of ExchangeAny antecedent debt or liability is validconsideration for a bill of exchange. Forexample, A mows B's lawn and a week later Bgives A a cheque for 10. A's work is valid

consideration in exchange for the cheque.

N id ti t t


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No consideration, no contract

-Consideration is essential for thevalidity of a contract.An offer withoutconsideration is a gift; one made for a

consideration is a bargain.

-An offer without consideration is a

gratuitous undertaking and can notcreate a legal obligation

Exceptions


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Exceptions~There are exceptional cases where a contract isenforceable even though there is noconsideration. They are as follows~

i) Natural love and affection

ii) Voluntary Compensation

iii) Time-barred debt

iv) Agency

v) Completed gift

vi) Public duty

vii) Promises to charity

Note: [For the rules regarding Consideration, please see theexamples from: Page 28-32, Sen & Mitra, 25th Edition(2006)]

P i it R l


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Principle of The Privity Rule

-The general rule is that only those who are

parties to a contract can enforce it or haverights under it. Other people might benefit

indirectly from the contract being enforced,but the third parties cannot bring legal actionin their own name to have it enforced.


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Can a person who is not a partyto a contract sue upon it.....?

Answer~


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A person who is not a party to a contract is a stranger. Astranger can not file a suit to enforce it, But a stranger tothe consideration can sue to enforce it provided he is aparty to the contract.

Exceptions~There are certain exceptions where a stranger cansue. They are as follows~

i) Beneficiaries in the trust

ii) Provision of Marriage Settlement of Minor

iii) Assignee of a contract

iv) Family Settlement

v) Acknowledgement or Estoppels

Note: [For the rules regarding Stranger, please see the examplesfrom: Page 33, Sen & Mitra, 25th Edition (2006)]

C id ti


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English Vs Indian law regarding Consideration

The difference between the English and the Indian

law relating to consideration are describedbelow~

i) The Indian law of contract does not make anydistinction between Formal contracts and Simple

contracts. In India, excepting few cases, allcontracts require consideration.

ii) Under English law, past consideration is noconsideration. Under Indian law, past

consideration is good consideration.

iii) Under English law, consideration must movefrom the offeree. Under Indian law, it may movefrom the offeree or any other person.


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Contract Law

Lecture-09: Consideration

- Capacities of Parties- Free Consent


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Capacities of Parties..?

Who can Contract ?


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Who can Contract.........?

Every person is competent to contract who is of theage of majority according to the law to which he is

subject, and who is of sound mind, and is notdisqualified from contracting by any law to whichhe is subject.

Sec-11 of the Contract Act states that~

A person is incapable of entering into contractsunder the following circumstances:

i) if he has not attained the age of majorityaccording to the law to which he is subject.

ii) if he is not of sound mind (i.e., if he is a lunatic oran idiot or suffering from a similar disability): and,

iii) if he is disqualified from contracting by

any law to which he is subject.

The Law regarding Minors Agreement~


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Usually as per law, a minor can not contractexcept with few exceptions. The law regardingagreements by minors may be summarized as

follows:

i) Minors agreement is voidii) A minor can be a promiseeiii) Minors liability for necessaries

iv) Law regarding compensation or Restitutionv) No Estoppel is applicable to the Minorvi) No Ratificationvii) No specific performance

viii) No insolvency

Note: [For the rules regarding MinorsAgreement, please see the examples from:Page 49-54, Sen & Mitra, 25th Edition (2006)]


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Free Consent...............?

F C t


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What is Free Consent...........?An agreement is valid only when it is

the result of the free consent of allthe parties to it.

Sec-13 states~ Two or more personsare said to consent when they agreeupon the same thing in the same

sense.

Sec-14 states~ Consent is not free if it is caused by:


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Sec 14 states Consent is not free if it is caused by:

i) Coercionii) Undue influence

iii) Fraudiv) Misrepresentationv) Mistake

i)

CoercionRegarding coercion, there are exceptions~i) Prosecutionii) High prices and high interest rates

iii) A threat to commit suicide

Note: [For the rules regarding Free Consent,please see the examples from: Page 59-75, Sen& Mitra, 25th Edition (2006)]

Undue Influence Vs Coercion


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Undue Influence Vs Coercion

In both undue influence and coercion, oneparty is under the influence of another~

i) In coercion the influence arises fromcommitting or threatening to commit anoffence punishable under the Bdesh Penal

code or detaining or treating to detainproperty unlawfully. Whereas, In undueinfluence, the influence arises from thedomination of the will of one person overanother.

ii) Cases of coercion are mostly cases ofthe use of physical force. Whereas, inundue influence there is mental pressure.

Fraud Vs Misrepresentation


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Fraud Vs MisrepresentationThe difference between fraud & misrepresentation are as follows~

i) Different Intention: In misrepresentation there is nointention to deceive. Whereas, fraud implies an intention to

deceive.

ii) Different Belief: If the statement is honest, eventhough it was wrong, this is misrepresentation. Whereas, ifthe statement is dishonest it is a case of fraud.

iii) Different Rights: In case of misrepresentation, theonly remedy is rescission. There can be no suit fordamages. Whereas, in case of fraud, the party aggrievedcan rescind the contract (i.e., the contract is voidable at hisoption) and can also sue for damage.

iv) Different Defense: In misrepresentation, if thecircumstances are such that the aggrieved party might havediscovered the truth with ordinary diligence, the contractcan not be avoided (voidable). Whereas, in fraud there is nosuch defense. Here aggrieved party can rescind the contractand/or file a suit for damages.

Can Silence be Fraudulent............?


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Can Silence be Fraudulent............?Answer~

Regarding fraud, silence can be fraudulent under the followingrules:

i) The general rule is that mere silence is notfraud.

ii) Silence is fraudulent, if the circumstances ofthe case are such that, regard being had to

them, it is the duty of the person keeping silenceto speak. The duty to speak i.e., disclose allfacts.

iii) Silence is fraudulent where the circumstancesare such that, silence is in itself equivalent to

speech.

Example~B says to A, if you do not deny it, I shall assume that the horseis sound. A says nothing. Here As silence is equivalent tospeech. If the horse is unsound As silence is fraudulent.

Principle of Uberrimae Fidei~


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Principle ofUberrimae Fidei~

Uberrimae fidei contracts are contracts

where law imposes upon the parties the dutyof making a full disclosure of all material

facts. In such contracts, if one of theparties has any information concerning the

subject matter of the transaction which islikely to affect the willingness of the otherparty to enter into the transaction, he isbound to disclose the information.

Principle ofCaveat Emptor~ .................?

Answer~..... means Buyer Beware


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Contract LawLecture-10:

-Termination- Breach &

- Remedies

- Tort Law

Termination/Discharge/Breach of Contract......?


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When the obligations created by a contract come to an end,the contract is said to be discharged or terminated. Acontract could be discharged/terminated in the following 7

ways~

i) Termination by Performanceii) Termination by Mutual agreementiii) Subsequent or Supervening impossibility

a) Pre-contractual impossibility

b) Post-contractual impossibilityiv) Termination by Operation of Lawv) Lapse of Timevi) Termination by Material alterationvii) Termination by Breach of contract

a) Anticipatory breach of contractb) Actual breach of contract

Note: [For the rules regarding Termination of Contract,please see the examples from: Page 115-129, Sen & Mitra,25th Edition (2006)]

Principle of Doctrine of Frustration


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Principle of Doctrine of Frustration

A contract which at the time it was enteredinto was capable of being performed maysubsequently become impossible to performor unlawful. In such cases the contractbecomes void. This is known as doctrine of

Supervening Impossibility. It is also knownas Doctrine of Frustration.

In other words~ When the common object ofa contract can no longer be carried out, thecourt may declare the contract to be at anend. This is known as Doctrine ofFrustration or supervening impossibility.

Grounds of Frustration~


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Grounds of Frustration~Frustration or Supervening impossibility

may occur in many ways. Some of whichare explained bellow-

i) Destruction of an object

ii) Change of law

iii) Failure of pre-condition

iv) Death

v) Personal incapacity

vi) Outbreak of war

Initial development of the Doctrine~


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Initial development of the Doctrine

[Taylor v Caldwell]

In 1863, Caldwell agreed to let a music hallto Taylor so that 4 concerts could be heldthere. Before the date of the first concert,the hall was destroyed by fire. Taylorclaimed damages for Caldwells failure tomake the premises available.

Decision~The court held the claim for breach ofcontract must fail since it had becomeimpossible to fulfill.

Doctrine of Frustration~


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Doctrine of Frustration~

Radical Change in the Obligations/Construction Test: to construe the contractual terms in the light of

the contract and surrounding circumstances atthe time of its creation

to examine the new circumstances and decidewhat would happen if the existing terms areapplied to it.

to compare the two contractual obligations andsee if there is a radical or fundamental change.

Breach of Contract: Remedies


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Breach of Contract: Remedies

When a breach of contract occurs, the

aggrieved party or the injured partybecomes entitled to the followingrelieves~

i) Rescind the Contract

ii) Suit for Quantum Meruit

iii) Suit for Damages

iv) Suit for Equitable Remedies- Specific performance

- Injunction

Principle of Quantum Meruit


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Principle of Quantum Meruit

The phrase Quantum Meruit means as

much is merited. A person can, undercertain circumstances, claim payment for

work done or goods supplied without anycontract and in cases where the originalcontract has terminated by breach ofcontract by one party or has become void

for some other reason. This is known asthe doctrine of Quantum Meruit.

Types of Damages~


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i) Compensatory damageii) Special damageiii) Nominal/Contemptuous damageiv) Exemplary, Punitive or Vindictive damage

Rules~ The rules on the subject of assessment or amount ofloss/damages can be summarized as follows~- Actual loss

- Natural and usual loss- Special damages- Restitution and Compensation- Costs- Minimization of loss

- Effect of a penalty clause- Difficulty of assessment

Note: [For the rules regarding Types/Assessment ofDamages, please see the definition & examples from: Page131-136, Sen & Mitra, 25th Edition (2006)]

Rules regarding the amount of Damages~


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Rules regarding the amount of Damages Principles~

It has 2 important characteristics-

i) Not a punishment of the defendant, but thecompensation for the complainant.

ii) Should not be made profit.

Remoteness of Damages: [Hadley Vs Baxendale (1854)]

From this case law, 2 principles emerged about the assessmentof damage. The damage should be amounted if it is ~

i) arising naturally

ii) contemplated by the parties at the time of the Contract

Sec-73 of the Contract Act says~

In case of a breach of contract, the affected/injured party isentitled to receive compensation for any loss or damage which

arose naturally from the breach or which the parties knew to be

Causation


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To prove causation exists, the plaintiff mustestablish that the state of affairs which he alleges

caused his loss was a direct consequence of thebreach.

Characteristics~

i) Where there are two causes of loss, one arisingfrom breach and one not, the one will besufficient to sustain an action

ii) An intervening act of a third party whichcauses additional loss, or aggravated the existingsituation, will not relieve the defendant fromliability if that intervening act was reasonablyforeseeable.

Mitigation of Damages


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No plaintiff should make a profit. It will be a duty of theplaintiff to show that so far as was possible to mitigatedhis/her loss. In other words~ It is the duty of every plaintiffto mitigate his loss, that is, to do his best not to increase

the amount of damages done.

Characteristics~

There are 3 rules:

i) The plaintiff can not recover for loss, if that losscould have been avoided by reasonable steps. Itis also true that the plaintiff is not expected totake risks to mitigate loss.

ii) The plaintiff can not recover for any loss he has

actually avoided, even though he took more stepsthan were necessary in compliance with Rule(i).

iii) The plaintiff may recover his loss incurred intaking reasonable steps to mitigate his loss, eventhough ultimately he was unsuccessful.

What is an Exclusion Clause.......?


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What is an Exclusion Clause.......?

Answer~An exclusion or exemption clause is onewhich purports to exclude wholly, or in

part, liability for certain breaches ofcontract of for the happening of certainevents. If the exclusion is only partial,then the clause may be called alimitationof liability clause.

The contra proferentem rule


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Literally translated this phrase means..... that theclause will, if there is any ambiguity be construedagainst the interests of the person seeking to rely on

it. Thus, where a clause fails to deal with a particularmatter, or is vague or uncertain, no account will betaken on the purported exclusion.

Example~

The plaintiff (a Tenant) leased a warehouse from thedefendant (a Landlord). In the lease was a clausewhich purported to exempt liability for loss anddamage which would not arisen but for the tenancy.The goods were damaged by a spark which gave rise

to a fire.

Decision~It was held, on a construction contra proferentem, that the lossdid not arise from the relationship of landlord and tenant, andso the clause was not applicable to exempt liability for the loss.

Exclusion Clausecan be 2 types~


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i) Penalty Clauseii) Liquidated Damages Clause

What is a Penalty Clause..........?

A clause which purports to punish the breacher, in excess ofhis real loss/damage is said to be a penalty clause. Penaltyclauses are not valid; in an action for breach of contract

they are disregarded.

What is a Liquidated Damages Clause..........?

A liquidated damages clause, if breach of contract is theactual assessment of damage/lose. In other words~ it is

nothing but the mitigated damages. In other words~Aliquidated damages clause in a contract will be effective inthe event of breach of contract and no action for un-liquidated damages will be permitted, provided the so-calledliquidated damages clause is a genuine attempt to pre-assessment damages and not a penalty clause.

Liquidated clause damages Vs Penalty clause

F [D l P i T C V N G d


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From [Dunlop Pneumatic Tyre Co Vs New Garage andMotor Co Ltd (1985)], four (4) tests developed whichwould prove helpful in deciding if the clause was a penaltyor not~

i) If the sum(s) stipulated is extravagant andunconscionable in amount in comparison to the greatest lossthat might be sustained, it will be a penalty.

ii) If the breach consists in not paying money and thesum(s) stipulated is far greater (e.g. to make a debtor pay

1000, if he fails to repay by the due date) then it will be apenalty.

iii) When a whole series of potential breaches, some serious,some not, are to be compensated by the payment of asingle lump sum, then it is a strong presumption that thismust be a penalty.

iv) Even if it is almost impossible to pre-estimate financialconsequences of breach to any degree of preciseness, it willnot be a penalty, provided there really is a genuine attemptby the parties to pre-assess likely damages, even if theirattempt is not accurate.

Example


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Example~A owes Tk. 50.000/ to B. If A can not pay/returnthe money with in next one month, he has to paya fine of Tk. 50/ per day. For the breach ofcontract, if B suffers the damage/loss of Tk. Tk.50/ or more, then it is liquidated damages. On theother hand, if the damage/loss is Tk. 40/ or less

than Tk. 50/, is a penalty clause.

Decision~In case of liquidated damages, courts allow only

the amount stipulated, never more or less eventhough it is shown that the actual loss is differentfrom the amount mentioned. Penalty clauses,however, are treated as invalid. The court allowsonly reasonable compensation by way of damages.

Equitable Remedies


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Equitable Remedies

If the damages are insufficient, then there are 2types of equitable remedies~

i) Specific Performance:.........is an equitable remedy for breach ofcontract. If the plaintiff can show that damagesare inadequate, then the court may entertain hisclaim and direct the defendant for performance.

ii) Injunctions~Injunction are 4 types~

a) Prohibitory injunctionAn injunction which orders the defendant torefrain from continuing with his tortuousactivities.

b) Mandatory injunction

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A mandatory injunction will not be granted wherethe plaintiff shows that there is a very strongprobability that grave danger will accrue to him in

future if the injunction is not granted.

c) Quia timet injunction

The tort has not yet been communicated, but the

plaintiff apprehends that he will suffer imminentsubstantial damage from commission of the tort.

d) Interlocutory injunction

Whether or not to grant such injunction, the courtdoes not inquire into the substantive merits of thecase; instead the plaintiff must show that there isa serious issue to be tried and that the balance ofconvenience lies in his favor.


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Damages which are usuallyirrecoverable..?

i) Injury to reputation

ii) Injury to feelings

iii) Failure to make/show title to land

Note: Although in contract law, the above damages areirrevocable, but can be recoverable in Tort Law. It

will be discussed later while we shall studyLabor/Employment Law.

What is Tort Law......?


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Answer~- A tort is a civil wrong which is not solely a breachof contract or a breach of trust, and which givesrise to civil proceedings to enforce a right.

- The law of tort is concerned with the legal dutiesthat individuals owe to each other and with thelegal rights that the law will protect.

i.e. Negligence, Nuisance, Defamation, Deceit,Malicious Falsehood, Passing off


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The Sale of Goods Act, 1930Lecture-11

Defn~


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Defn

Buyer: Buyer means a person who buys oragrees to buy goods..

Seller: Seller means a person who sells oragrees to sell goods..

Goods: The term Goods includes every kindof movable property except-

(i) actionable claims &

(ii) money.


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What isactionable claim.....?

Defn: An actionable claim means a debt or a claim formoney which a person may have against another whichhe may recover by suit. Money means legal tendermoney.

These two types of movable property are not included in

the definition of the term Goods as used in the Sale ofGoods Act. All other types of movable property areGoods under the said Act.

T f Goods~


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Types ofGoods~Goods may be classified into 3 types:

Existing Goods: which are already in existence andwhich are physically present in some personspossession and ownership. Existing Goods are of 2types~

Specific and Ascertained Goods

Generic or Un-specific and Unascertained Goods

Future Goods;... which would be produced infuture.

Contingent Goods:.... depends upon a contingencywhich may or may not happen.

Goods


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Example ofGoods~Future Goods: P agrees to sell to Q all the mangoes

which will be produced in his garden next year. This is anagreement for the sale of future goods.

Contingent Goods: X agrees to sell to Y a certain ring

provided he is able to purchase it from its present owner.This is an agreement for the sale of contingent goods.

Defn:


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Defn:

Sale & Agreement to Sell~ Sale: Where under a contract of sale the

property in goods (i.e. the ownership) istransferred from the seller to the buyer thecontract is called a sale.

Agreement to Sell: When the transfer of

ownership is to take place at a future time orsubject to some condition to be fulfilled later,the contract is called an agreement to sell.

Remember: [An agreement to sell becomes a sale when the

prescribed time elapse or the conditions, subject to which theproperty in the goods is to be transferred, are fulfilled].

Difference:

Sale Vs Agreement to Sell~


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Sale Vs Agreement to Sell~The difference between Sale and Agreement to Sell are asfollows~

i) Transfer of ownership:In Agreement to Sell, the property in the Goods remains with theseller until the agreement to sell becomes a sale by the expiry ofthe agreed time.

ii) Transfer of risk:Passing of risk principle applies.

iii) Nature of contract:Sale is an Executed Contract whereas, Agreement to Sell is anExecutory Contract.

iv) Remedial measures:

In case of Sale, the unpaid seller has certain relieves available,e.g.. Lien, Stoppage in transit & Resale. Whereas, in Agreement toSell, the sellers remedy for breach of contract by the buyer, issuit for damage.

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Defn: Condition, Warrantee &Guarantee~

Condition: A condition is a stipulation essential to the mainpurpose of the contract.

Warranty: a warrantee is a stipulation collateral term and

subsidiary to the main purpose of the contract.

Guarantee: A contract of guarantee is a contract toperform the promise or discharge the liability, of a thirdperson in case of his default.

Difference:


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Condition Vs Warrantee~The difference between Condition and Warrantee are as

follows~

i) Condition is a term which is essential to the main purposeof the contract. Warranty is only a collateral term. It issubsidiary to the main purpose of the contract.

ii) Breach of a condition gives aggrieved party a right torepudiate the contract. It also creates a right to getdamages. Whereas, breach of warrantee entitles theaggrieved party to claim damages only.

ii) A breach of condition may under certain circumstances,be treated as warrantee. But a warrantee can not become acondition.

Difference:


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Warrantee Vs Guarantee~

The difference between Warrantee and Guarantee are asfollows~

i) Guarantee gives aggrieved party full replacement of the

product as well as services where required. Whereas,warrantee entitles the aggrieved party only services whererequired.

ii) All guarantees may be termed as warrantees, but allwarrantees are not guarantees.

Doctrine ofCaveat Emptor~Caveat Emptor is a latin expression which means buyerb Th d i f h


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beware. The doctrine of caveat emptor means that,ordinarily, a buyer must buy goods after satisfying himself oftheir quality and fitness. If he makes a bad choice, he can notblame the seller to recover damages from him.

Exception(s)~

(i) Where the buyer relies upon the skill and judgment of theseller.

(ii) Where by custom an implied condition of fitness is annexed

to a contract of sale.(iii) Where there is a sale of goods by description, there is animplied condition that the goods are fit for sale.

(iv) Where the seller is guilty of fraud.

Note: [Please remember, the Principle ofUberrimae Fidei inContract Law]~ Uberrimae fidei contracts are contracts where lawimposes upon the parties the duty of making a full disclosure of allmaterial facts.

continued-

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Some Implied Conditions~Condition as to title

Sale by description

Sale by sample

Sale by sample as well as by description

Condition as to fitness or quality

Note: [For the rules regarding ImpliedConditions, please see the examples from:

Page 213-216, Sen & Mitra, 25th Edition(2006)].

Transfer of Ownership


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Doctrine ofPassing of Risk~

Sec-26 of Contract Act states that~ Goods remain at

the sellers risk until the ownership is transferred tothe buyer. After the ownership has passed to thebuyer, the goods are at the buyers risk whetherdelivery has been made or not. Risk followsownership

Exception(s)~

(i) Where delivery has been delayed through the fault of

either the buyer or the seller, the goods are at the risk of

the party in fault as regards any loss which might not haveoccurred but for such fault.

(ii) The parties may agree that the risk will pass at a timedifferent from the time when ownership passed.


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Transfer ofTitle by non-owner

The general rule is that only the owner of thegoods can sell the goods. No one can conveyto a transferee a better title than he himselfhas. If a person transfers articles notbelonging to him, the transferee gets no title.

This principle is expressed by the latin phrase,Nemo quod qui non habet, which meansnone can give who does not himself possess.

Consequences ofbreach of Contract of SaleThe Sale of Goods Act gives the following rights to the


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The Sale of Goods Act gives the following rights to theaggrieved parties when there is a breach of contract ofsale of goods~

Sellers Remedies~i) Sellers LienThe unpaid seller of goods, who is in possession of them,is entitled to retain possession until payment or tender ofthe price.

ii) Stoppage in TransitWhen the buyer of goods become insolvent, and thegoods are in course of transit to the buyer, the seller canresume possession of the goods from the carrier.

iii) Resale

The unpaid seller who has retained possession of thegoods in exercise of his right of lien or who has resumedpossession from the carrier upon insolvency of the buyercan resell the goods.

iv) Suit for PriceWhere under a contract of sale the property in the goods


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Where under a contract of sale the property in the goodshas passed to the buyer and the buyer wrongfully neglectsor refuses to pay for the goods according to the terms of

the contract, the seller may sue him for the price of thegoods.

v) Suit for Damages

When the buyer wrongfully neglects or refuses to acceptand pay for the goods, the seller may sue him for damagesfor non-acceptance.

vi) Claim for Interest & Special Damages

The seller may recover interest or special damages in anycase where by law interest or special damages may berecoverable.


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Buyers Remedies~ Damages for Non-delivery Specific Performance

Remedy for breach of Guarantee/

Warrantee Repudiate/Reject the Contract


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Negotiable Instrument Act, 1881Lecture-12

What is Negotiable Instrument ?


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What is Negotiable Instrument......?

Defn: Documents of a certain type, used in commercial

transactions and monetary dealings, are called NegotiableInstrument.

In other words,Negotiablemeans transferable by deliveryandInstrumentmeans a written document by which a

right is created in favor of some person. The termnegotiable, literally means the document transferable bydelivery

In English law, a negotiable instrument is one in which, the

true owner could transfer, the contract or engagementcontained therein by simple delivery of the document.

Types ofNI


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(i) Promissory Note

(ii) Bill of Exchange

(iii) Cheque

i)Promissory note

A promissory note is an instrument in writing (notbeing a bank note or a currency note) containing anunconditional undertaking signed by the maker, to paya certain sum of money only to, or to order of acertain person, or to the bearer of the instrument.

The person who makes the promise to pay is called theMaker. He is the debtor and must sign the instrument.The person who will get the money (the creditor) iscalled Payee.

ii)Bill of ExchangeA bill of exchange is an instrument in writing containing


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A bill of exchange is an instrument in writing containingan unconditional order, signed by the maker, directing acertain person to pay a certain sum of money only to,

or to the order of a certain person or to the bearer ofthe instrument. i.e.......

(i) Bankers Draft- If outside Dhaka(ii) Pay Order- If in side Dhaka(iii)Travellers Cheque

The maker of a bill of exchange is called the Drawer.The person who is directed to pay is called the Payee.When the payee has custody of the bill, he is called theHolder.

It is the holders duty to present the bill to the drawee

of his acceptance. The drawee signifies his acceptanceby signing on the bill. After such signature the draweebecomes the Acceptor.

iii) Cheque


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iii)ChequeA cheque is a bill of exchange drawn upon aspecified banker and payable on demand.

Cheque are of 2 types~

(i) Open Cheque

(ii) Crossed/Accounts Payee Cheque

Difference:

Promissory Note Vs Bill of Exchange~


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The difference between promissory note and bill of exchangeare as follows~

(i) Number of Parties:In a promissory note there are 2parties- the maker and the payee. In a bill of exchange thereare 3 parties-the drawer, the drawee and the payee.

(ii) Promise to Order: In a promissory note there is a promiseto pay. In a bill of exchange there is an order to pay.

(iii) Acceptance: A promisory note is signed by the personliable to pay; therefore, no acceptance is necessary. A bill ofexchange, except in certain cases, requires to be accepted bythe drawee before it is binding upon him.

(iv) Notice: In case of non-payment or non-acceptance of abill, notice must be given to all persons liable to pay. This is

called the notice of dishonor. In case of promissory note,notice of dishonor to the maker is not necessary.

Difference:

Bill of Exchange Vs Cheque~The difference between Bill of exchange and Cheque are as


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g qfollows~

(i) A bill of exchange can be drawn upon any person, includingbank. A cheque can be drawn only upon a bank. Thus everycheque is a bill of exchange but every bill of exchange is not acheque.

(ii) Except under certain specified circumstances, a bill ofexchange requires acceptance. A cheque does not require anyacceptance.

(iii) A cheque is always payable on demand. The acceptor of abill of exchange is allowed a grace period of 3 days, after thematurity of the bill, to make the payment.

(iv) If a bank fails to pay a cheque, it is not necessary to givenotice of dishonor to the drawer to make him liable tocompensate the payee. In case of bill of exchange, it is

necessary to give notice of dishonor, except in certain specialcases.

Note: [In Promissory Note & Cheque; Notice to the Maker not necessary, Butin Bill of Exchange; Notice to the Maker is must].


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Does Promissory Note needacceptance........?

Answer~No........, But a bill of exchange is said to be acceptedwhen the drawee puts his signature on it, thereby


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p g , yacknowledging his liability under the bill.

Mode of AcceptanceThe usual mode of acceptance is writing the wordaccepted across the bill and signing under it. Writing theword accepted is not essential but the signature is. Thesignature may be put anywhere, on the face of the bill oron the back of it.

Type ofAcceptanceAcceptance may be classified either~

i) General: Acceptance is general when Acceptor acceptsliability to pay the amount mentioned in the bill in full,without any conditions or limitation.

ii)Qualified: Acceptance is qualified when Acceptor acceptsliability to pay the amount mentioned in the bill in full, withsome conditions or limitation.

Dishonor of a NI


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Mode ofDishonor~A negotiable instrument may be dishonored in 2 ways:

i) by non-acceptanceii) by non-payment

Only bills of exchange can be dishonored by nonacceptance, since bill requires acceptance. On the otherhand, Promissory note & Cheque can be dishonored by

non-payment.

Consequence ofDishonor~- Notice (where necessary..)- Sue for damage- File a criminal case under Sec-138 of Negotiable

Instrument Act, 1881. [ This is a bailable offence; punishment is up to 1 year]