Category: Contract Law

Viability of Section 74 of the Indian Contract Act in the Present Commercial Context
Posted on

S.no Contents 1. Introduction 2. Definition of Section 74 of the Indian Contract Act 3. Time Aspects and Other Dispositions 4. Importance of Penalties 5. Jurisdiction of Section 74 of the Act 6. Analysis of Section 74 of the Act 7. Principal of Mitigation 8. Conclusion Introduction Since the passage of the colonial Indian Contract Act of 1872 (ICA)1, much has changed or developed in the manner that commerce is done. Due to the act’s age, there are a few flaws that need to be reviewed and fixed to ensure efficient corporate operations. Unliquidated losses, which apply where a contract lacks a section addressing liquidated damages, are discussed in Section 74 discusses liquidated damages. This clause deals with liquidated damages, however, the act doesn’t define them, and the courts have frequently issued contradictory rulings in various circumstances. These decisions are frequently viewed incorrectly or differently. This study aims to clear up any ambiguity about significant liquidated damages rulings. It is far more difficult to assert the liquidated damages since you have to demonstrate the extent of the losses the harmed party produced. There are very few contracts where the damages in the event of a breach cannot be determined. In these kinds of circumstances, it might be challenging to assert liquidated damages that equal the actual harm. The ‘genuine prior estimate of losses’ provision, which the party who breaches the contract attempts to exploit, is given weight by the courts in determining whether liquidated damages are appropriate or not. Additionally, there is no distinction between a penalty and liquidated damages under Indian contract law because the awarded compensation cannot exceed the contract’s maximum value. Definition of Section 74 of the Indian Contract Act “The complaining party is entitled to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named, or the case may be, the penalty stipulated for when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty,”2 according to the law. Exception of Section 74 Any person who signs a bail bond, recognizance, or another similar document, or who offers a bond by law, a directive from the [Central Government] or a 3[State Government] for the accomplishment of a public duty or act in which the public is interested, is liable to pay the full sum specified therein if the condition of the document is broken. Illustrations Time Aspects and Other Dispositions Time is a crucial component of this specific Section 74 of the ICA 1872. The Indian Contract Act of 1872 has significant repercussions that follow a delay, making it difficult for the party in default to immediately breach the contract. The important aspect of these actions is their profound philosophy. The contractual provision of a penalty is meaningless in the absence of any loss.  The idea of taking advantage of rewards coming from a violation of a contract is mentioned in the Indian Contract of 1872. The bare act states that “When the vendor sells to the defaulting vendee is not eligible to receive the benefits of the later contract if the price is higher than the market price on the day of delivery.” This is accurate even if the vendor received the advantages of a different contract that was desirable to him in return for the loss of the contract that the defaulting vendee had breached. Importance of Penalties The essence of a penalty is the payment of the agreed-upon monetary recompense to the party who was wronged. The fundamental idea behind compensation is that the aggrieved party should regain its prior position before the contract’s performance. The landmark case Tata Iron & Steel Co Ltd v. Ramanlal Kandoi3 established this rule, stating that it is important to be aware of the events that caused the plaintiff’s loss of income. The innocent person needs to comprehend the damages. A comprehensive analysis of the types of fines and damages is necessary. The mere use of terms like “loss” or “damages” does not make the defaulting party liable. A sequence of events must occur for the loss brought on by the contract’s breach to be fairly assessed. Section 74 of the Indian Contract Act abolishes the rather convoluted differences established under English Common Law between provisions allowing for the payment of liquidated damages and clauses in the form of penalties. Jurisdiction of Section 74 of the Act Bal Kishan Das v. Fateh Chand4, the Court explained the application of Section 74 by dividing situations involving damages into two categories: Analysis of Section 74 of the Act When considering the application of Section 74 in Fateh Chand v. Bal Kishan Das5, The Court stated that it handles issues involving damages, which are divided into two categories. when the compensation due in the case of a contract violation is predetermined. Where penalties in the form of extra provisions may be included in the contract. The Supreme Court noted that the expression is meant to embrace several sorts of contracts in Maula Bux v. Union of India6, It might not be practicable for the court to determine compensation in cases of contract breaches. If the sum agreed upon by the parties is a real pre-estimate and not a penalty, then it may be used in some circumstances as the benchmark for appropriate compensation. The party seeking compensation must establish the loss incurred in cases when a monetary loss may be identified. In these situations, the courts must consider whether the amount sought is reasonable. The courts will do this while using the Section 73 principles. The magnitude of the damage incurred by a party must thus be shown in every instance. The obligation to establish the level of loss was waived in some instances, however, where the harm was difficult or impossible to demonstrate. In Indian Oil Corporation vs. Messrs Lloyds Steel Industries Ltd7, the DelhiRead More

General American Insurance Co. v. Madanlal Sonulal
Posted on

Case Number 158 Ind Cas 554 Equivalent Citation (1935) 37 BOMLR 461 Bench The Bombay High Court Decided On 12.03.1935 Relevant Act / Section The Indian Contract Act, 1872 The Insurance Act, 1938 Brief Facts and Procedural History Introduction This legal case centres around a minor named Madanlal Sonulal, who initiated legal proceedings against The Great American Insurance Co. Ltd. for failing to fulfil a contractual promise. The agreement was made between the minor’s guardian and the insurance company and was deemed valid. Madanlal was the only surviving son of a joint Hindu family that operated a business in Devalgaum. The family had taken out a fire insurance policy with the defendant company to cover their cotton bales. However, when the cotton bales were destroyed in a fire, the plaintiff sued the defendant company for the recovery of their loss. The defendant company, which was incorporated in New York, USA, was conducting business in Bombay, India. To represent him in the case, Madanlal was aided by his next friend, Goverdhandas Mohanlal, who was the husband of the plaintiff’s sister and with whom the plaintiff was living. The case raises several legal issues, including the enforceability of contracts entered into by minors, the obligations of an insurance company under a fire insurance policy, and the jurisdiction of foreign companies operating in India. The court had to determine whether the contract was binding on the minor, whether the insurance company had fulfilled its obligations, and whether the court had jurisdiction to hear the case. The case has significant implications for Indian contract law, particularly in relation to minors and the obligations of insurance companies. Ultimately, the court’s ruling would have a profound impact on the rights of Indian citizens in similar legal disputes. Facts This is an appeal case regarding a point of law arising from Mr Justice Kania’s decision. The plaintiff, Madanlal Sonulal, is represented by Goverdhandas Mohanlal, his next friend, and has filed a lawsuit against The Great American Insurance Co., Ltd. This company is based in New York, USA, but operates in Bombay at Apollo Street within the Fort of Bombay. According to the lawsuit, the plaintiff is the only surviving coparcener of a joint Hindu family that carries on a joint family business in Devalgaum under the name Surajmal Sonulal. The plaintiff lives with his sister’s husband, Goverdhandas Mohanlal, who oversees the firm’s operations. The plaintiff had effected an insurance policy against fire with the defendant company on certain cotton bales Nevertheless, at the precise moment when the ultimate insurance was granted to the plaintiff’s company, the bales were set on fire, prompting the plaintiff to file a lawsuit seeking compensation for the resulting loss through the insurance policy. The defence raised in the written statement is that there was collusion between the agent of the defendant company and the persons who affected the insurance and that the insurance was affected after the fire. The defendants did not plead that the plaintiff was a minor and that the insurance policy was void. However, during the proceedings, the defendant’s counsel drew the attention of the learned Judge to the fact that the plaintiff was a minor and invited the Court to raise an issue as to whether the contract was void on the ground of a minority of the plaintiff. The learned Judge raised such an issue, but at the trial, he came to the conclusion that it was not necessary to answer the issue since the minority had not been pleaded. The defendants have appealed the judgment of the learned Judge. They have not challenged the findings of fact. However, they contend that the insurance policy is void because the plaintiff is a minor, relying on the well-known decision of the Privy Council in Mohori Bibee v. Dhurmodas Ghose[1]. The Privy Council held that any contract by a minor is wholly void under the Indian Contract Act since the Act requires that parties to a contract should be persons competent to contract, and if one of the parties is a minor, he is not competent to contract, and therefore, no contract results. The learned Judge had found that the contract was valid and negatived the case of fraud and collusion set up by the defendant company, and gave judgment for the plaintiff. The only answer raised by the defendants is that the insurance is void because the plaintiff is a minor. This contention is alarming since it means that the property of minors cannot be insured  In numerous joint family enterprises, minors inherit ownership rights, and typically an adult member of the family manages the business under the minor’s name. However, if this family member is unable to secure insurance on behalf of the minor, it can create a highly precarious situation. Nonetheless, the evidence indicates that the agreement was actually established by Goverdhandas, who acted as a representative through his agent Trimbaksha. In other words, the minor who entered into the contract did so through the agent Trimbaksha, who was serving as the minor’s guardian. The Court need not delve into the principles of the previous cases since the answer to the defendants’ contention is a simple one. The contract was made by the guardian of the minor, and not by the minor himself. Thus, the insurance policy is not void. Before this case, in Mohori Bibee and Ors. Vs. Dharmodas Gosh (1903), the Privy Council had held that a contract by a minor is void-ab-initio. Yet, the Privy Council ruled in Sri Kakulam Subrahmanyam Vs. Kurra Subba Rao (1948)[2] that an agreement made by a guardian on behalf of a minor for their advantage is considered legally binding. In Suraj Narain Dube v. Sukhu Aheer and Anr (1928)[3], the Allahabad High Court held that the old consideration by the minor is not valid consideration for a fresh contract. In the case of Kunwarlal Daryavsingh vs Surajmal Makhanlal And Ors. (1963)[4], the Madhya Pradesh High Court held that a minor is liable to pay rent forRead More

The Future and Embracing of E-Contracts and Mitigating Legal Risks
Posted on

S.no Contents 1. Introduction 2. What is an E-Contract? 3. Legal Validity of E-Contracts 4. Essentials 5. Validity of E-Contracts under the Indian Evidence Act 6. Roles of Parties in an E-Contract 7. Kinds of E-Contracts 8. Challenges Associated with E-Contracts 9. Present Dilemmas 10. Conclusion Introduction As we enter the era of digitization, technology has become the backbone of almost everything, from our means of communication to attendance tracking in offices is now seamlessly integrated with technology. It’s no secret that in this day and age, technology is the driving force behind the advancements we see around us. As more companies continue to expand and agreements become increasingly complex, it’s only natural that the contracts themselves should become digitized as well. Here in India, the rise of online transactions has led to a surge in the use of electronic contracts. These cutting-edge agreements are created and executed through electronic communication and digital signatures, bypassing the need for physical documents or signatures. With this new level of convenience and efficiency, we can now close deals with ease, without having to deal with tedious paperwork or signatures. What is an E-Contract? The Indian Contract Act, of 1872[1], defines a contract as an agreement that is enforceable under the law. Section 2(h) of the Act states that for an agreement to be considered a contract, it must meet certain legal requirements. Interestingly, electronic contracts, also known as E-Contracts, adhere to the essence of Section 2(h) while changing the mode of contract formation. In simple terms, E-Contracts are digital agreements that are created, negotiated, and executed without the need for physical paperwork. The parties involved communicate through electronic means, such as the internet or telephonic media, allowing for a meeting of the minds to take place. E-Contracts save time and are a step ahead of traditional pen-and-paper contracts as they are entirely paperless and created through digital mediums. Through the use of electronic means, such as the internet or telephonic media, the parties involved in E-Contracts are able to communicate effectively, leading to a meeting of the minds. This not only streamlines the negotiation process but also reduces the need for physical meetings, saving time and resources. Unlike traditional pen-and-paper contracts, E-Contracts are created through digital mediums and are completely paperless, making them environmentally friendly and cost-effective. They are a step forward from traditional contracts, as they are efficient, secure, and authentic. Legal Validity of E-Contracts Section 10A of the Information Technology (IT) Act, 2008[2] is a significant provision in the Indian legal framework that acknowledges the legitimacy and enforceability of electronic contracts. The IT Act was amended to include this section as a response to the increasing use of digital contracts in commercial dealings. The introduction of Section 10A of the IT Act clarifies that electronic contracts cannot be considered invalid merely because they exist in electronic format. These contracts hold the same legal value and enforceability as traditional paper contracts. This means that parties entering into an electronic contract have the same legal rights and duties as those in a contract executed on paper. The Act not only recognizes the legality of electronic contracts but also sets out certain conditions for their validity. These conditions include making the contract accessible for future reference and using a reliable and secure electronic signature or authentication method. Additionally, it clarifies that any law which requires a contract to be in a particular form or written shall be deemed satisfied if the contract is in electronic form and meets the requirements specified under Section 10A. Essentials There must be a proposal – one party must offer to enter into a contract. There must be acceptance – the other party must agree to the proposal. Legal consideration must be there – there must be something of value exchanged between the parties. Parties must be able to contract – they must have the legal capacity to enter into a contract. Free consent by the parties – the parties must enter into the contract freely and voluntarily without any coercion or undue influence. Lawful objective – the purpose of the contract must not be illegal or against public policy. It is essential for an e-contract to fulfil these criteria in order to be valid and enforceable under the law. Therefore, if all the necessary elements of a contract are present in an electronic agreement, it cannot be invalidated solely on the basis of its digital form, making E-Contracts legally binding and valid. It is crucial to establish the legal validity of an E-Contract to ensure that legal action can be taken in case of any violation of the agreement. Validity of E-Contracts under the Indian Evidence Act According to Section 65B[3], any information contained in an electronic record that is either printed on paper, stored, recorded, or copied in an optical or magnetic media produced by a computer, can be deemed to be a document. However, this is subject to certain conditions, including that the electronic record is produced in court in compliance with the provisions of the Indian Evidence Act, and that it is accompanied by a certificate identifying the electronic record containing the statement of the person who had control over the creation of the record. In essence, Section 65B ensures that electronic records are given the same evidentiary value as physical documents. This provision is particularly significant in the context of electronic contracts, as it reinforces their legal validity and provides parties with a means of proving the existence and terms of an electronic contract in court. Roles of Parties in an E-Contract An e-contract usually involves two parties: the originator and the addressee. The originator is responsible for initiating, sending, or creating the electronic message, while the addressee is the intended recipient of the message. The originator could be an individual, a business, or any other organization that initiates electronic communication. They can send an e-contract proposal to the addressee through various electronic channels such as email, messaging platforms, or an online contractRead More

When Age Matters: Examining the Implications of Minors Entering into Contracts
Posted on

S.no Contents 1. INTRODUCTION 2. WHO IS A MINOR? 3. CAN MINORS ENTER INTO A CONTRACT? 4. CONTRACTS OF BENEFICIAL NATURE 5. BENEFICIARY TO A CONTRACT 6. RESTITUTION 7. NO ESTOPPEL AGAINST MINOR 8. RATIFICATION BY A MINOR 9. VOIDABLE AT THE OPTION OF A MINOR 10. CONCLUSION INTRODUCTION The capacity to contract is a crucial aspect of contract law, which refers to the ability of a person to enter into a legally binding agreement. In other words, it is the legal competence or power of an individual or entity to enter into a contract that creates enforceable rights and obligations between the parties involved. To be bound by a contract, the parties must have the legal capacity to agree. This means that they must have the mental capacity and legal status required to form a legally binding contract. The law recognizes that certain individuals or entities may not have the necessary capacity to enter into a contract, and therefore, any agreement they make may not be legally binding. For example, minors, individuals with mental incapacities, and individuals under the influence of drugs or alcohol may not have the legal capacity to enter into a contract. In such cases, any contract they enter into may be deemed void or unenforceable. Similarly, corporations and other legal entities must also have the capacity to contract. This means that they must have the legal authority and power to enter into a contract, as well as the necessary authorization from their board of directors or shareholders. Overall, the capacity to contract is a fundamental element of contract law, as it ensures that contracts are entered into freely and voluntarily by parties who have the legal competence and power to be bound by them. WHO IS A MINOR? According to Section 3[1] of the Indian Majority Act, of 1875, an individual is considered to have achieved the age of majority once they turn 18 years old, with the exception of two scenarios If a guardian has been appointed for a minor’s person or property under the Guardians and Wards Act, of 1890, then the minor will remain a minor until they complete the age of 21 years. If a Court of Wards has assumed the superintendence of a minor’s property, then the minor will also remain a minor until they complete the age of 21 years, even if they have already turned 18 years old. Under the act, minors enjoy a privileged position whereby they can bind others to contracts, but cannot themselves be held accountable for any breaches. This means that a minor cannot be held personally responsible for any wrongdoing they may commit. CAN MINORS ENTER INTO A CONTRACT? According to Section 11[2] of the Indian Contract Act, of 1872, it is explicitly prohibited for a minor to enter into a contract. This prohibition means that any contract entered into by a minor, regardless of whether the other party was aware of their age, will be considered void-ab-initio, or invalid from the outset. This means that even if a minor is just one day away from turning 18, they will still be considered a minor in the eyes of the law, and any contracts they enter into will be deemed void. Let’s take an example to understand the legal concept of minors and contracts; In this case, Mr D, a minor, mortgaged his house for Rs.20,000 to a moneylender, who paid him only Rs.8,000. Subsequently, Mr D filed a lawsuit to set aside the mortgage agreement. The court held that as per Section 11 of the act, a minor is not capable of entering into a contract, and any contract entered into by a minor is void. Therefore, the mortgage agreement between Mr D and the moneylender was void-ab-initio, as Mr D was a minor at the time of the agreement. The court further held that since the contract was void, Mr D was not liable to repay the moneylender any amount of the mortgage. The court allowed Mr D’s request to set aside the mortgage agreement, and the moneylender was not entitled to claim any rights on the property mortgaged by Mr D. It is a well-established legal principle that minors are generally unable to enter into contracts, given their lack of legal capacity. However, there are two notable exceptions to this rule; CONTRACTS FOR NECESSARIES These are goods and services that are necessary for the minor’s support and maintenance. In such cases, a minor can enter into a contract for necessities, and the contract will be binding on the minor to the extent that it is reasonable and necessary. CONTRACTS OF BENEFICIAL NATURE  This type of contract is entered into for the benefit of the minor and is therefore binding on the minor. Examples of such contracts may include contracts for education or to advance the minor’s business interests. It is important to note that in both cases, the contracts must be entered into for the benefit of the minor in order to be legally enforceable. These exceptions to the general rule regarding minors and contracts serve to protect the best interests of minors and ensure that they can enter into necessary and beneficial agreements. The principle that a minor cannot enter into a legally binding contract has been firmly established in various landmark cases. One such notable case is Mahori Bibi v/s Dharmodas Ghose[3], where the court held that a minor’s contract is void ab initio and unenforceable, even if the minor has misrepresented their age or misled the other party into believing that they were of age. The case has been widely cited and has played a pivotal role in shaping contract law in India, reaffirming the principle that minors cannot be held liable for obligations under a contract and can seek to have the contract set aside if necessary. BENEFICIARY TO A CONTRACT It is recognized that a minor can serve as a promisee or beneficiary in a contract and that a contract that is advantageous toRead More

Avoidance Of Land Contracts Under Insolvency And Bankruptcy Laws
Posted on

INTRODUCTION An organization is a fake individual running for the satisfaction of a reason, however, on occasion, there are circumstances that could prompt its defeat and when an organization wraps up it is possibly removing the work of everybody related to it and is likewise influencing the economy of the country in a negative manner. Thusly, every conceivable step is taken to stay away from this from occurring yet when it couldn’t be stayed away from and indebtedness procedures of an organization are going to initiate, the exchanges made and the agreements went into by the organization preceding the initiation of such bankruptcy procedures are judged and the ones that are viewed as unsafe for the organization and individuals related with it or are violative of the interests of the debt holder or the lender are proclaimed to be void. The cycle is known as evasion of pre-insolvency procedures. The indebtedness and chapter 11 regulations have sorted out an approach to adjusting the privileges of both borrowers as well as lender. Lenders of the element reserving an option to guarantee the levy from the home of the debt holder can not maneuver the borrower toward auctioning off the resources like land, shares and different resources or going into an agreement that isn’t leaning toward the interests of the indebted person and is in any case violative of his privileges or interests. UNCITRAL MODEL The Uncitral model under section 2 of its regulative aide accommodates the evasion of specific exchanges with respect to an indebted person to guarantee the equivalent treatment of the multitude of lenders and insurance of the privileges of the borrowers in order to not get controlled by any of the leaders to go into an agreement for the exchange of any of the resources at a worth lower than that of its genuine worth. One more point of view on the equivalent is keeping away from bias with respect to the borrower, the debt holder could favour a lender over the others and could go into an agreement with him in regards to the exchange of a resource when they become mindful of the forthcoming bankruptcy procedures. Consequently, these exchanges that are placed preceding the initiation of the bankruptcy procedures are dropped or are considered to be incapable to guarantee the security of freedoms of each and every elaborate party. Various purviews have put together their indebtedness regulations with respect to the Uncitral model anyway there are qualifications that could be tracked down between the laws of various nations. The Indebtedness and Chapter 11 code, 2016 arrangements with the avoidable, otherwise called weak exchanges under sections 43 to 51. The kinds of exchanges that are avoidable under the IBC are: Preferential transactions Undervalued transactions Extortionate credit transactions. The previously mentioned exchanges are to stay away from the debt holder during the significant period which is two years in the event of a connected party and one year in different conditions going before the bankruptcy beginning date according to section 46 of the IBC, 2016. EVASION PROCEDURES The Uncitral Model Regulation is intended to help States to outfit their bankruptcy regulations with a cutting-edge legitimate system to all the more really address cross-line indebtedness procedures concerning debt holders encountering extreme monetary misery or insolvency. The regulative aide is reliable of 4 sections on indebtedness regulation covering the goals, primary issues, components accessible for the goal of the debt holder’s monetary challenges, the beginning, the disintegration of the indebtedness procedures, evasion of procedures, cross-boundary bankruptcy regulations, other like arrangements that require consideration exhaustively. The regulative aide section 2 accommodates the privileges of a borrower, wherein it is expressed that where the debt holder is a characteristic individual, certain resources are for the most part prohibited from the bankruptcy domain to empower the debt holder to protect its own freedoms and those of its family and it is positive that the option to hold those barred resources be clarified in the indebtedness law. CRITERIA Objective Rules: The emphasis is on the goal questions, for example, whether the exchange occurred inside the suspect period and whether the exchange proved any of various general qualities set out in the law. Emotional Rules: Emotional methodology is more case explicit, the inquiries that would emerge would resemble whether the expectation to conceal the resources from the loan bosses was there, and when did the borrower become indebted whether it was at the hour of the exchange or whether it was after the transaction. Mix Of The Two: The bankruptcy laws of greater parts of the states are more emotionally driven, but it is joined with a time span inside which the exchange probably happened. In India, for instance, the significant period is 2 years in the event of a connected party and 1 year if there should arise an occurrence of some other loan boss. CONVENTIONAL COURSE OF BUSINESS A differentiation is drawn between what might be considered as an everyday practice or normal exchange in a business and what is remarkable and ought to be stayed away from as a piece of avoidable exchange. An earlier lead of the debt holder could assume a part here alongside customs and ordinary practices as continued in the business. The states are allowed to take both of the standards as a base to accommodate the avoidable exchanges as referenced previously mentioned. EVASION ACTIVITIES ALL OVER THE PLANET As expressed over, the Uncitral model is just giving a manual for the states to form legitimate evasion activities, various purviews follow the different arrangements of staying away from power, and after ordering them comprehensively we can come to an end result that there are single set and twofold arrangement of staying away from powers, common regulation nations, for example, France and Spain are devotees of a single bunch of keeping away from powers, while customary regulation nations follow two-fold arrangement of staying away from powers, nations, for example, UK and USA, the twofold arrangement of keeping awayRead More

Avoidance of Land Contracts Under Insolvency and Bankruptcy Laws
Posted on

Introduction A company is an artificial person that exists to serve a purpose, but some circumstances could cause it to fail. When a company fails, it could potentially eliminate jobs for everyone connected to it and have a detrimental effect on the nation’s economy. Every effort is made to prevent this from happening, but when it couldn’t be helped and an organization is about to enter into insolvency proceedings, the transactions and agreements made by the organization prior to the start of those proceedings are assessed, and those that are found to be detrimental to the organization and those connected to it or that violate the interests of the debtor or the creditor are deemed null and void. Avoidance of pre-bankruptcy procedures is the name of the process. The laws governing insolvency and bankruptcy have figured out how to strike a balance between the rights of the debtor and the creditor. The debtor cannot be forced to sell off assets like shares of stock, real estate, or other assets, or to sign a contract that goes against his rights or interests in any way by creditors of the entity with the authority to collect debts from the debtor’s estate. The activities taken and agreements made in this regard are avoidable and preventable in order to safeguard the interests of the debtors, and as a result, are referred to as avoidable transactions. The protection of debtors’ assets, their maximization as a value, and the availability of credit in place of those assets continue to be the goals of avoidable transactions. Ultimately, improving the company’s financial situation and streamlining the resolution procedure will result in a fair allocation of the assets. Prior to the start of the insolvency proceedings, the two parties may enter into contracts involving simple assets like shares, buildings, or land or more complex agreements like those involving a franchise, taking over construction projects, etc. Given its prominence and value as one of a company’s most precious assets, the land would be a target for any creditor who set out to pay off their debts to the debtor while ignoring other creditors. Land contracts between a creditor and a debtor should be avoided in addition to all other contracts. The UNCITRAL model, in accordance with part 2 of its legislative guide, calls for the avoidance of specific transactions on the part of the debtor in order to guarantee the treatment of all creditors equally and protect the rights of the debtors and prevent them from being coerced by creditors into entering into a contract for the transfer of any asset at a value that is less than its true value. Avoiding favoritism on the part of the debtor is another way to look at the situation. The debtor can prefer one creditor over another and get into an agreement with him on the transfer of an asset as soon as they learn that bankruptcy procedures will soon begin. To ensure the preservation of the rights of all parties involved, these transactions that were made before the start of the insolvency procedures are canceled or declared to be ineffective. There are differences between the rules of different countries, even though different jurisdictions have based their insolvency laws on the UNCITRAL model. Under sections 43 to 51 of the 2016 Insolvency and Bankruptcy Code, transactions that can be avoided, commonly known as vulnerable transactions, are addressed. Under the IBC, the following transactions can be avoided: Preferential Transaction Undervalued Transaction Extortionate Credit Transaction According to section 46 of the 2016 IBC, the debtor must avoid the aforementioned transactions throughout the relevant period, which is two years in the case of a related party and one year in all other cases before the insolvency beginning date. Model and Avoidance Procedures for UNCITRAL The UNCITRAL Model Law is intended to help States give their insolvency laws a contemporary legal foundation so that they can deal with cross-border insolvency processes involving debtors who are in serious financial difficulty or insolvency more efficiently1. The legislative guide is composed of four parts on insolvency legislation, covering the objectives, structural issues, mechanisms for resolving the debtor’s financial difficulties, the start, termination, and avoidance of proceedings, as well as other similar provisions that call for detailed consideration. In the legislative guide’s part 2 on debtor rights, it is stated that it is preferable for the right to keep those excluded assets to be made clear in the insolvency law when a debtor is a natural person and that certain assets are typically excluded from the insolvency estate to allow the debtor to preserve its rights and those of its family2. Avoidance proceedings are likewise covered by recommendations 87 to 99 in the same section of the legislative handbook. The avoidance proceedings are based on a general principle of insolvency law that gives priority to the collective goal and overall maximization of the value of the assets and credit availability to facilitate equal treatment for all the creditors and the debtor’s rights rather than providing individual remedies to the creditors who could claim the assets by entering into a contract with the debtor before the commencement of the insolvency proceedings. “Provisions dealing with avoidance powers are designed to support these collective goals, ensuring that creditors receive a fair allocation of an insolvent debtor’s assets consistent with established priorities and preserving the integrity of the insolvency estate,” reads a statement about this in the guide. The UNCITRAL model also stipulates a few avoidance criteria. There are several factors, including the normal course of business, defenses, and both subjective and objective criteria. The state may choose any of the criteria as long as the overall goal—to strike a balance between the interests of the individual and the estate—remains the same. Criteria Objective Criteria: The focus is on measurable issues, such as whether the transaction occurred during the questionable time frame and whether it demonstrated any of the several broad legal requirements. Subjective Criteria: The subjective approach is more case-specific, and theRead More

DISCHARGE OF CONTRACT BY BREACH
Posted on

INTRODUCTION Section 10 of the Indian Contract Act prescribes the essentials for the formation of a valid contract which includes free consent of the parties, competency of the parties, lawful consideration, lawful object and ultimately entering into agreements that are not expressly declared void by the Act. After the abovementioned ingredients of a valid contract are fulfilled and the object of the contract is served, it is said that the contract is discharged. There are four distinct ways by which the contract may be discharged which are asfollows: Discharge by Performance Discharge by Impossibility Discharge by Agreement Discharge by Breach The article in hand seeks to uncover the details for the discharge of a contract by the breach and elucidates the required remedies. MEANING OF BREACH Breach of a contract is said to occur when either of the party to the contract renounces his liability or contractual obligations under the terms and conditions of the contract or makes the total or partial performance of the contract impossible due to his own act/ failure. The breach of a contract can be of two types: Anticipatory Breach Present Breach ANTICIPATORY BREACH Section 39 of the Indian Contract Act deals with the doctrine of anticipatory breach. The anticipatory breach is basically said to occur when the promisor rejects to perform the contract by announcing his intention of not fulfilling the contract prior to the actual date of the performance of the contract or disables himself from the performance of the contract in part or in its entirety. Features: Anticipatory breach absolves the innocent party from the obligation to further perform the contract and brings an end to the obligations of the original contract. Anticipatory breach further entitles the aggrieved party to either sue the defaulting party immediately for the breach of the contract or wait till the time when the act was supposed to be done. The above principle was famously laid down in the landmark case of Hochester v De La Tour1. Further, anticipatory breach of a contingent contract i.e. performance of contracts on happening of any conditional event also gives a scope of action for damages. If the defaulting party announces his intention of default and the aggrieved party decides to wait until the actual date of performance of contract so as to sue the promisor, then the contract is deemed to be alive, subject to the obligations of the contract, thereby implying that repudiation of the contract by the promisor has not been accepted by the promisee. In order to ascertain what constitutes repudiation, the entire conduct and the words of the party have to be objectively assessed on the anvil of refusal or abandonment to performance of the contract. The breach must strike the root of the contract. Silence of the aggrieved party does not lead to acceptance of repudiation. Such condition of unaccepted repudiation enables the defaulting party either to complete the contract, thereby binding the promisee to accept the same, or else to take advantage of any supervening situation i.e. discharge by means other than repudiation. And if so happens that due to the supervening situation performance of the contract becomes impossible, then the defaulting party is absolved from his contractual obligations and stipulations.2 The date for assessment of the general damages in cases of anticipatory breach shall be the date on which the repudiation took place. If the aggrieved party does not accept the anticipatory breach of the contract, then the damages will be assessed from the date of the actual performance of the contract. In the meantime, the promise shall take all the reasonable steps to mitigate the losses to the minimum.3 It is to be noted that there lies a remedy of damages for the losses suffered due to non-performance of the contract even if the contract has been acquiesced by the promisee thereon (usually in the cases of anticipatory breach wherein the promisor is later allowed by the promisee to fulfill the contract). Further, as per the mandate of Section 64 Indian Contract Act, the aggrieved party, on bringing an action for damages, shall be bound to restore the benefits or advantages that he might have received under the terms of the contract. PRESENT BREACH Present breach is said to occur when the defaulting party breaches the contract on the actual date of the performance of the subject matter of the contract. The aggrieved party, in such cases, shall be entitled to sue the defaulting party for the breach of the contract in a competent court of law and extract the requisite monetary damages. DAMAGES FOR BREACH Damages refer to the monetary compensation that is claimed by the injured or aggrieved party for the breach of contract. The burden of proof of the breach of contract lies upon the plaintiff. The action for damages is mainly assessed on the twin criterion of “remoteness of damages” and “measure of damages”. The fundamental principle behind awarding damages is to place the plaintiff in the same position in which he would have been if the contract had been fulfilled or if the breach had not occurred. The damages are hence compensatory in nature and not penal. Motive and manner of a breach are not taken into account in order to ascertain the compensation. 1. Remoteness of Damages:It was in the landmark case of Hadley v. Baxendale, that the first acceptable criteria for assessing the quantum of damages were evolved. As per it, only such damages should be considered for the purpose of computing compensation as may be fairly or reasonably be considered as arising from the natural or the usual course of actions or such as may be reasonably in contemplation of both parties while entering into a contract. The given case laid down two distinct rules for the purpose of computing damages. General Damages: These damages are awarded in such cases of a breach that may arise naturally due to the usual course of things. Special Damages: These arise on account of unusual orRead More

ALL THE WAYS IN WHICH THE ACCEPTANCE IS VALID IN CONTRACTS
Posted on

It is stated that accepting an offer is like lighting a match to a barrel of dynamite. For a contract to be successful, a genuine offer must be followed by acceptance of the offer. Let’s look at what defines genuine acceptance in more detail. Acceptance “The offer is considered to be accepted when the person to whom the proposition has been made gives his approval thereto,” reads Section 2 (b) of the Indian Contract Act 1872. As a result, the plan becomes a promise once it is authorized. Acceptance happens when the offeree to whom the proposition is made unconditionally accepts the offer, as indicated in the definition. When an offer like this is accepted, it becomes a promise. Let’s imagine A makes an offer to buy B’s car for Rs. 2 lakhs, and B accepts. This has now become a commitment. Once a proposal has been approved, it can no longer be amended. If accepted, an offer does not create any legal obligations, but it does create a promise. A promise is also irreversible since it creates legal obligations between parties. It’s possible that an offer will be revoked before it’s accepted. Once acceptance has been conveyed, it cannot be revoked or canceled. Rules regarding Valid Acceptance 1. Only the person or persons to whom the offer is made and with whom it implies a contracting intention is allowed to accept it:An offer may only be accepted by the person or persons to whom it is made and with whom it implies a contracting intention; it cannot be accepted by anyone else without the offeror’s permission. The rule of law reads, “If you plan to create a contract with/1, then B cannot replace himself for A without your agreement.” An offer made to a single person can only be accepted by that individual. Any member of a group of individuals (for example, instructors) can accept an offer that is made to them. Anyone who is aware of the existence of an offer made to the entire world can accept it. 2. Acceptance must be unqualified and unconditional:To be legally effective, it must be a complete and unqualified acceptance of all the conditions of the offer. If there is even the smallest deviation from the terms of the offer, the acceptance is annulled. A deviating acceptance is considered a counter-offer in the legal sense. 3. Acceptance must be communicated in a common and fair manner unless the proposal specifies how it should be accepted:If the offeror does not indicate a method of acceptance, acceptance must be expressed in a common and fair manner. The most prevalent modes of communication are the word of mouth, mail, and behavior. An explicit acceptance is one that is expressed in words, either verbally or in writing, or by mail or telegram. When approval is expressed by behavior, it is known as implicit or tacit acceptance. Implied acceptance can be proven by doing a necessary action, such as locating missing goods for the stated reward, or by accepting a benefit or service, such as a passenger boarding a public bus. If the offeror specifies a form of acceptance, the acceptance offered in that style is absolutely admissible, even if the mode is funny. As a result, if the offeror specifies lighting a match as a method of acceptance and the offeree does the same, the acceptance is complete and effective. However, what if the offeree opts for a method other than the one specified? “The proposer may, within a reasonable time after the acceptance is given to him, request that his proposal be accepted in the stated manner, and not otherwise; nevertheless, if he fails to do so, he accepts the (deviated) acceptance,” says Section 7(2). Reality acceptance is ineffective:Mental approval or quiet permission without words or activity does not establish legal acceptance, even if the offeror has stated that such a mode of acceptance will suffice. Otherwise, until the offeror is notified, acceptance has no effect. 4. Acknowledgment must be transmitted by the acceptor:For an acceptance to be valid, it must be communicated to the offeror not just by the offeree, but also by or with the offeree’s authority (or acceptor). 5. Acceptance must be made in a fair amount of time before the offer expires or is revoked:Because an offer cannot be kept open indefinitely, acceptance must be made within the given time limit, if any. Acceptance must be made within a reasonable time if no time restriction is specified (Shree Jay a Mahal Cooperative Housing Society versus Zenith Chemical Works Pvt. Ltd.). Before the offer is revoked or expires owing to the offeree’s understanding of the offeror’s death or insanity, acceptance must be provided. 6. Acceptance must happen after the offer is made:Acceptance must happen after the offer is made. It should come after, not before, the offer. A person was handed shares in a corporation that had not applied for them. He then applied for shares, completely unaware of the previous allocation. Prior to the application, the distribution of shares was deemed to be invalid. 7. Rejected offers may only be accepted if they are renewed:If an offer has previously been rejected, it cannot be accepted again unless a fresh offer is made (Hyde vs Wrench). Are There Different Kinds of Contract Acceptance? Bill acceptances are divided into two categories: general acceptance and qualified acceptance. Absolute acceptance refers to wide approbation that is unqualified and unconditional. Acquiescence that is given without qualification is referred regarded as general acceptance. When someone accepts an order to pay a certain sum in whole and without limitations, this is known as a general acceptance. This is a common type of acceptance unless other paymentarrangements are made. An acceptance must be wide in order to be legitimate as a general standard. When someone accepts an instrument, they qualify it by attaching a condition to it. Acceptance can be divided into three categories: Acceptance by the Empress Acceptance is implied. Acceptance on condition While any ofRead More

Evidentiary Value of E-Contracts
Posted on

INTRODUCTION An E-contract is also known as a digital contract that is written and signed electronically. A contract agreement between two or more parties that is legally enforceable. Commercial contracts with e-businesses can be exchanged with the use of e-contracts. An e-contract can be created on a computer and emailed to a business counsel. The digital signature of the business advocate specifies that he accepts the contract. An electronic contract is an agreement between two parties for the sale or supply of digital items and services. On an electronic contract, traditional ink signatures are not feasible; instead, a computer executes and enacts them in electronic form. The main aim of e-contracts is to negotiate and draft successful contracts for business purposes. ESSENTIAL ELEMENTS OF ONLINE CONTRACT Offer– The offer should be made by one party to another and should have a lawful purpose. Acceptance– When the person to whom the offer was made accepts it, it becomes a promise. Intention to create a legal relationship– A contract that does not establish a legal relationship is not a legitimate contract; a contract that does not establish a legal relationship is not valid. Lawful object– Parties entering into a contract should do so with a legal purpose in mind. To be legally enforceable, a contract must be made for a legal purpose. Lawful consideration– Consideration is one of the most important features of any contract. The basic concept of consideration is that if a party to a contract keeps his word, he will receive something in return. The form of consideration has to benefit, right, or profit. The capacity of Parties– Parties who enter into a contract must be capable of doing so. It is necessary to be of sound mind and to have reached the age of majority. Consent– Consent should be unrestricted, and the parties’ minds should meet. Consent must be genuine and unrestricted, and it cannot be obtained through deception, misrepresentation, or undue influence. The Contract’s terms and conditions must be specific and not ambiguous. E-CONTRACTS RECOGNITION The Validity of E-contracts is emphasized in Section 10 of the Information Technology Act. To be valid, a contract must include the offeror offering for the proposal another person accepting the proposal, denial of the proposal, and acceptance, as valid, stated in electronic form via electronic channels. Such contracts cannot be declared void because electronic forms were working or for that purpose. When electronic records are recognized and official to a contract when the electronic contract has been presented, conveyed, and acceptance has been received then Information Technology Act recognizes E-contracts as legal. A Digital Signature Certificate is likewise legally legitimate and enforceable, according to the IT Act. Indian Evidence Act of 1872- According to the Indian Evidence Act of 1872, a contract is legitimate if it contains any information in the form of an electronic record written on paper, stored and recorded in an optical created by computer. EVIDENTIARY VALUE UNDER THE INDIAN EVIDENCE ACT Electronic papers are recognized by Indian courts. The Indian Evidence Act of 1872, Section 65-A. The process for presenting evidence of electronic documents is governed by section 65-B of the Indian Evidence Act, 1872. Section 65B of the Indian Evidence Act states that any information that is contained in electronic records which are printed on paper, or a copy of that record which is created on magnetic media, is considered to be secondary evidence document if it meets the conditions in section 65B. Section 85A– The assumption of electronic agreements includes this part. It says that once a digital signature is attached to an electronic record that represents the nature of an agreement, the document is regarded as finished. To ensure that e-contracts are authentic, Section 85A was enacted. The assumed value, however, has many limits. The presumption only applies to electronic recordings, electronic records older than five years, and electro records. Section 85B– In the lack of evidence to the divergent, Section 85B provides that the court must assume that the record in question has not been tampered with in any way. The secure status of a record can be requested for a specific amount of time.  Section 88B Any electronic message carried by the maker over an electronic media to the addressee to whom the message is to be sent is assumed to have been loaded into the computer for transmission. Section 90A– The court may assume that a digital signature was used to attest to the agreement’s legality if an electronic record is 5 years old and in proper care. A digital signature can be added to a document by anyone who has been permitted to do so. An exception can be made if the facts of a given instance indicate that the origin is likely. Section 85 C– The court will assume that the information contained in a digital signature certificate is correct and true. The phrase “must suppose” relates to the court’s discretionary jurisdiction being expressly excluded. Section 65B specifies that any information contained in an electronic record that is printed on paper and generated by a computer is considered a document. In a country with a low literacy rate, such as India, the concept of ‘Digital India’ remains a long way off. People are still wary of making online purchases since the terms and conditions of such agreements are unclear. The type of law that governs electronic contracts is also vital to examine. Even though the Information Technology Act of 2000 legalized electronic contracts, it lacks particular rules. As a result, in terms of evidentiary value, we can claim that those electronic contracts are comparable to hard copy contracts. Because electronic contracts are legalized by the Information Technology Act, they are all valid contracts, and anyone who interrupts the terms and conditions may be held liable. Since then, many changes have been made in an attempt to gain conceptual clarity. The evidentiary value of an electronic record is determined by its quality.  CASE LAWS TRIMEX INTERNATIONALA FZE LTD. DUBAI VS VEDANTA ALUMINIUM LTD. In this example, the parties communicatedRead More

FELTHOUSE V. BINDLEY
Posted on

CITATION (1862) 11Cb (NS) 869, EWHC CP J35; 142 ER 1037 APELLANT Bindley RESPONDENT Paul felthouse DECIDED ON 8 th July 1862 COURT Court of Exchequer chamber JUDGES Willies, byles and Keating JJ AREA OF LAW Acceptance BACKGROUND Uncle felthouse was quite interested with his nephew’s horse. So, he sends a letter to hisnephew as a proposal to buy the horse which stated: “if I hear no more about him, I’llconsider the horse is mine for 30.15 shilling”. The nephew received the letter of Mr Felthouseand decided to sell his horse to him. But he failed to respond to the offer. Suddenly, thenephew faced an auction of the property and told the auctioneer, Mr.bindley to auction all hisproperty except the horse. On the day of auction, Bindley forgot to spare the horse from theauction. As the horse was a good breed it had a great demand in the auction and Mr. Bindleyaccidently sold the horse to another person for 33 shillings. When felthouse came to knowabout the incident he sued the auctioneer under the tort of conversion (usage of someoneelse’s property inconsistently with their right). This made felthouse to prove the contractvalid by showing that the horse was his property. Bindley stated that Mr. Felthouse doesn’thave any ownership over the horse even though the nephew had an interest to sell the horse. Since it wasn’t communicated properly, the contract doesn’t seem to be valid. The majorissue raised in this case was whether the silence or failure to reject an offer amounts toacceptance. The court finally ruled that felthouse did not have any ownership over the horseas there was no acceptance from his nephew’s side. This is a landmark case in the history ofcontract law which states that no one can necessitate anyone to make a decision on to rejector accept an offer and it also states that mere silence does not amounts to acceptance. FACTS 1 Paul felthouse send a proposal to his nephew John felthouse in the form of a letter tobuy his horse, which stated: “if I hear no more about him, I’ll consider the horse ismine for 30.15 shilling”.2 Despite having the intention to sell the horse, the nephew never had accepted theproposal. So, he told the auctioneer, Bindley to exempt the horse from the auction.3 Mr. Bindley forgot about the condition and sold the horse for 33 shillings to anotherperson.4 Paul felthouse sued Bindley under the tort of conversion by stating the horse as hisown. ISSUE Whether there exists any valid contract between the uncle felthouse and his nephew. Whether the silence or failure to convey the rejection of an offer amounts to acceptance of the proposal. JUDGEMENT It was held by the court was there wasn’t any valid contract existed between felthouse and hisnephew. Despite having an intention to sell the horse, there wasn’t any acceptance to theproposal from his nephew’s side. A proposal will only get emanated as a contract where thereis an acceptance to the proposal. Hence it was stated that silence or failure to convey therejection of a proposal will not amounts to acceptance of the offer. RATIO DECENDI You cannot exert your decisions on an unwilling party. Silence or failure to convey rejection of an offer will not amounts to acceptance. You cannot assume acceptance if there is no notification of acceptance or implied acceptance through action present. CONCLUSION The case Felthouse v. Bindley was a turning point in the history of contract law. In this case itwas proved that there wasn’t any contract between the uncle and his nephew.it thus provedthat silence will not amount to an acceptance to a contract. This article is written by Nourizen Nizar, student of Government Law College, Ernakulam, Kerala