LEGAL ASPECTS OF BUSINESS PROF. RAJARSHI CHAKRABORTY SESSION 3

TOPICS PRIVITY OF CONTRACT DISCHARGE OF CONTRACT CONTRACT OF INDEMNITY AND GUARANTEE

PRIVITY OF CONTRACT The doctrine of privity in contract law provides that a contract cannot confer rights or impose obligations arising under it on any person or agent except the parties to it. Privity is the legal term for a close, mutual, or successive relationship to the same right of property or the power to enforce a promise or warranty. Privity of contract occurs only between the parties to the contract, most commonly contract of sale of goods or services The premise is that only parties to contracts should be able to sue to enforce their rights or claim damages as such

LAWFUL OBJECT Object or consideration is unlawful if (1) It is forbidden by law, (2) Is of such a nature if permitted it would defeat the provisions of any law, (3) It is fraudulent, (4) The court regards it immoral, (5) The court regards it opposed to public policy.

DISCHARGE OF CONTRACT It means termination of the Contractual relationship between the parties. A contract is said to be discharged when it ceases to operate, that is when the rights and obligations created by it comes to an end.

WAYS OF DISCHARGE A contract may be discharged by By performance By Agreement By impossibility of performance By breach of contract By operation of Law By lapse of time

DISCHARGE BY PERFORMANCE It takes place when the parties to the contract fulfill their obligations arising under the contract within the time and in the manor prescribed. Actual Performance: When both the parties perform their promises, that contract is discharged. Attempted performance: offer to perform the obligations

DISCHARGE BY AGREEMENT The rights and obligations created by an agreement can be discharged without their performance by means of another agreement between the parties. The various cases of discharge of a contract by agreement are Novation: existing contract substituted by a new contract Alteration: changing the terms (one or more) of an existing contract. Rescission: Act of vacating or cancellation Remission: acceptance of a lesser fulfillment of the promise or lesser sum. waiver Merger

DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE Impossibility existing at the time of contract known as pre contractual or initial impossibility. Subsequent or supervening impossibility also know as post contractual impossibility. A contract becomes null and void when the act becomes impossible .

DISCHARGE BY BREACH OF CONTRACT If a party breaks his obligation, which the contract imposes, there takes place breach of contract. Actual Breach of Contract may take place at the time when the performance is due, during the performance of the contract. Anticipatory breach of contract takes place when a party repudiates (refuses) his liability or obligation under the contract, before the time for performance arrives.

REMEDIES FOR BREACH OF CONTRACT Rescission of the contract: When a Breach of Contract is committed by one party, the other party may sue to treat the contract as rescinded and in such a case the agreed party is freed from all his obligations under the contract.

REMEDIES FOR BREACH OF CONTRACT Damages: It means compensation in the form of money which the party who suffers from the breach of contract is entitled to receive from the party who has broken the contract. Damages are of four kinds Ordinary damages: natural consequence. Special damages: resulting from a breach under special circumstances. Vindictive or punitive or exemplary damages: objective to punish the defendant Nominal damages: technical violation of the legal right.

REMEDIES FOR BREACH OF CONTRACT A degree for specific performance: in such cases damages are not the adequate remedy. The court may direct the party in breach to carryout his promise according to the terms of the contract. The remedy is discretionary and will not be granted in the following cases, Where monetary compensation is an adequate remedy. Where the court cannot supervise the execution of the contract, e.g. building contract. Where the contract is for personal service Where one of the parties is a minor.

REMEDIES FOR BREACH OF CONTRACT An Injunction It means an order of the court restraining the wrongdoer from doing, or continuing the wrongful act complained of, where a party is in breach of a negative term of contract (where he does something which he promised not to do) E.G: W agrees to sing at L’s theatre and during a certain period to sign nowhere else. Afterwards W made contract with Z to sing at another theatre and refused to perform the contract with L. W could be restrained by injunction from singing for Z.

REMEDIES FOR BREACH OF CONTRACT Quantum Meruit: As much as is merited. A right to sue on a quantum Meruit arises where a contract partly performed by one party has become discharged by the breach of the other party.

CONTRACT OF INDEMNITY A contract by which one party promises to save the other from any loss caused to him by the conduct of the promisor himself, or by the conduct of any other person. The person who promises to make good the loss is called an Indemnifier (Promisor) and the person whose loss is to be made good is called the Indemnified or Indemnity – Holder (Promisee) A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of Rs. 200.

ESSENTIALS OF A CONTRACT OF INDEMNITY There must be two parties in a Contract of Indemnity, i.e the Indemnifier and the Indemnified. A Contract of Indemnity may be expressed or Implied. This contract being a specie of contract, is subject to all the rules of contract, such as free consent, legality of object, etc.

ESSENTIALS OF A CONTRACT OF INDEMNITY A contract of indemnity is enforceable only when the Promisee suffers a loss, the happening of which is unknown. The Indemnified is entitled to enforce the contract only if he suffers the loss against which the indemnity holder or the Indemnified was promised to be protected. Consideration in the case of Contract of Indemnity is essential to enable the Indemnity holder or Indemnified to claim to be compensated.

CONTRACT OF GUARANTEE It is a contract to perform the promise or discharge the liability of a third person in case of his default. The person who gives the guarantee is called the Surety and the person in respect of whose default the guarantee is given is called a Principal debtor and the person to whom the guarantee is given is called the creditor. The function of a Contract of Guarantee is to enable a person to get a loan, or goods on credit or an employment.

ESSENTIALS OF A CONTRACT OF GUARANTEE It can either be in oral or in writing. Tripartite Agreement: It involves three agreements between the principal debtor and the creditor, the surety and the creditor and between the surety and the principal debtor. There must be a primary liability in some person other than the surety.

ESSENTIALS OF A CONTRACT OF GUARANTEE The liability of the surety should arise only when the principal debtor makes a default. A Contract of Guarantee should also be supported by some consideration, but there need not be any direct consideration between the surety and the creditor.

ESSENTIALS OF A CONTRACT OF GUARANTEE All the three parties that is the surety , the creditor and the principal debtor must be eligible to enter a contract There must be Free Consent between the parties otherwise the contract might become null and void.

DIFFERENCE BETWEEN CONTRACT OF INDEMNITY AND CONTRACT OF GUARANTEE Contract of indemnity involves two parties, that is the Indemnifier and the indemnified whereas Contract of Guarantee involves three parties, that is the Creditor, the Surety and the Principal Debtor. The Liability of a Indemnifier (Promisor) is primary and independent in a Contract of Indemnity whereas the liability is secondary for a surety and primary for the Principal debtor in a Contract of Guarantee.

DIFFERENCE BETWEEN CONTRACT OF INDEMNITY AND CONTRACT OF GUARANTEE In a Contract of Indemnity there is only one Contract between the Indemnifier and the Indemnified whereas in a Contract of Guarantee there are three contracts. In Contract of Indemnity it is not necessary for the Indemnifier to act on the request of the Indemnified but in a Contract of Guarantee, it is necessary for the Surety to give the guarantee at the request of the Principal Debtor.