2.

3 PRIVITY OF CONTRACT
• only the persons who are parties to the contract can acquire rights and incur liabilities
under it.
• obligations under a contract generally cannot be transferred unless all the parties consent
• equity, and in limited cases, the law permits an assignment of rights
• contract requiring performance of personal service is not assignable

2.4 TERMS OF A CONTRACT

• Assuming that a simple contract has been created and that there is no element which
affect its validity, it may necessary to consider exactly what is that the parties have agreed
to include in the contract.
• Contract Act 1950 does not contain any provision which deals specifically with the
contents of a contract
• One may say that the contents of a contract are made up of terms agreed by the parties
• Terms is basically a statement which creates contractual obligations between the parties,
breach of which will result in the injured party being able to sue.
• terms may be expressed or implied – Section 9
• terms may be classified as:
1. Condition – vital to the contract. The parties consider it so important that its non-
performance may be considered by the injured party as amounting to substantial
failure to honour the contract at all and thus may be regarded as grounds for setting
the contract aside, and or suing for damages
2. Warranty – considered to be of lesser importance to the main purpose of the
contract. If it is breached, the injured party must still perform their part of the
contract but they have the right to sue for damages for any loss that they may
suffer as a result of the breach

Conditions and Warranties

• whether a particular term in a contract is a condition or a warranty depends on the intention
of the parties
• the courts will have to determine the exact intention of parties.

Exemption Clauses
• It is not unusual to find a party trying to limit or exclude their liability in certain situations
by including an exception, exemption or exclusion clause in the contract.

2.5 VOIDABLE CONTRACTS

• all agreements are contracts if they are made by the free consent of parties – section 10,
Contracts Act
• according to section 14, consent is said to be free when it is not caused by:
1. Coercion
2. Undue influence
3. Fraud
4. Misrepresentation
5. Mistake
• a party to a contract, whose consent was caused by fraud or misrepresentation, may, if
he thinks fit, insist that the contract shall be performed, and that he shall be put in the
position in which he would have been if the representation made had been true – section
19
1. Coercion
• is defined in section 15, Contracts Act 1950
• Coercion is the committing or threatening to commit any act forbidden by the Penal Code
or the unlawful detaining or threatening with the intention of causing any person to enter
into an agreement.

2. Undue Influence
• is defined in section 16, Contracts Act 1950
• matters to be dealt with under section 16(3) are:
• The relations between the parties to each other must be such that one is in a position to
dominate the will of the other
• The issue whether the contract has been induced by undue influence
• The burden of proving that the contract was not induced by undue influence lies upon the
person who was in a position to dominate the will of the other

3. Fraud
• is defined in section 17, Contracts Act 1950
• wherever a person causes another to act on a false representation which the maker
himself does not believe to be true, he is said to have committed a fraud
• The suggestion as to a fact of that which is not true by one who does not believe it to be
true
• The active concealment of a fact by one having knowledge or belief of the fact
• A promise made without any intention of performing it
• Any other act fitted to deceive
• Any such act or omission as the law specially declares to be fraudulent

4. Misrepresentation
• is defined in section 18, Contracts Act 1950
• The basic difference between misrepresentation and fraud is that in fraud the person
making the representation does not himself believe in its truth whereas in case of
misrepresentation he may believe the representation to be true.

5. Mistake
• cases where there is a mistake of fact – see section 21, Contracts Act 1950
• section 22 provides for cases where there is a mistake as to law
• a contract is not voidable merely because it was caused by one of the parties to it being
under a mistake as to a matter of fact – section 23

2.6 VOID AND ILLEGAL CONTRACTS

• a void contract is an agreement not enforceable by law – section 2(g)
• according to section 24, the consideration or object of an agreement is lawful unless:
a) it is forbidden by a law
b) it is of such a nature that, if permitted, it would defeat any law
c) it is fraudulent
d) it involves or implies injury to the person or property of another
e) the court regards it as immoral, or opposed to public policy

• agreements are void if any part of their considerations and objects are unlawful – section
25
 • agreements declared void by the Contracts Act 1950:
• An agreement made without consideration unless it is in writing and registered, or
is a promise to compensate for something done, or is a promise to pay a debt
barred by limitation law – section 26
• An agreement in restraint of marriage – section 27
• An agreement in restraint of trade except for an agreement not to carry on business
of which goodwill is sold; or an agreement made prior to a dissolution of a
partnership or an agreement made during the continuance of a partnership –
section 28
4. An agreement in restraint of legal proceedings except for a contract agreeing to
refer disputes to arbitration or a contract relating to scholarships – section 29
5. An agreement, the meaning of which is not certain, or capable of being made
certain – section 30
6. An agreement by way of wager – section 31

Consequences of Void or Illegal Agreements

• the courts will not enforce an illegal contract
• right of restitution – section 66

2.7 RESTRAINT OF TRADE AND LEGAL PROCEEDINGS

1. Restraint of Trade
• all contracts restraining a person from carrying on a lawful profession, trade or
business is to that extent prima facie void – section 28
• three exceptions to the general rule:
1. Restrictions on the sale of the goodwill of a business
2. Agreements between partners made upon or in anticipation of a dissolution
3. Agreements between partners not to carry on business during the
continuance of the partnership

2. Restraint of Legal Proceedings

• every agreement by which any party to an agreement
is restricted absolutely from enforcing his rights under
the contract, or any agreement which limits the time to enforce a party’s rights, is
void – section 29
• exceptions to this general rule:
1. Contracts to refer disputes which may arise to arbitration
2. Contracts to refer any question which may have already arisen to
arbitration
3. Contract in respect of an award of a Government scholarship wherein it is
provided that the discretion exercised by the Government under that
contract shall be final and conclusive and shall not be questioned by any
court

3. Effects of Contracts in Restraint of Trade and Legal Proceedings

• contracts in restraint of trade or legal proceedings are not entirely void. Such a
contract is void to the extent of the restraint only
• it is possible to sever that part which is invalid and to enforce the rest of the
agreement provided it does not substantially alter the nature of the agreement
2.8 DISCHARGE OF CONTRACT

Discharge of
contract

By frustration By performance By breach

1. Discharge by Frustration
• if a party promises to carry out a particular act, the law will hold them to their
promise – doctrine of absolute liability
• for exceptions to this rule of frustration
• doctrine of frustration applies where the following situations occur:
1. Physical impossibility because of destruction of subject matter
2. Physical impossibility under contract of personal service
3. Change in the law rendering performance impossible
4. Impossibility due to non-occurrence of event basic to contract
5. Where the particular state of affairs ceases to exist

Effects of Frustration
• to discharge a contract immediately, but only as to the future. The contract is not void ab
initio, but only void from the time of the frustrating event.
• a total failure of consideration would need to be established in order that the money be
recovered

2. Discharge by Performance
• performance of a contract must be exact and precise and should be in accordance with
what the parties had promised – section 38(1)
• performance may be from a third party and not necessarily from the promisor – section 42
• section 56 regulates the position when time is of the essence of a contract
• the performance of any promise may be made in any manner, or at any time, which the
promisee prescribes or sanctions – section 51
• the effect of both sections 51 and 56 a promise must be performed at the time agreed by
the parties

3. Discharge by Breach
• when a party fails to perform their obligations as agreed
• can occur due to:
– Failure to comply with a term of the contract
– Anticipatory breach
– Delay in the performance where time is of the essence

Effects of Breach
• the innocent party is entitled to treat the contract as ended and may be able to
recover damages
• partial breach – the innocent party still has to carry out his obligations but may sue
for damages
 • if the innocent party ends the contract, he must restore any benefits received from
the other party – section 65

2.9 REMEDIES
• Remedy is the method by which an injured party enforces a right or corrects a loss
• The remedies available to the injured party will depend on the nature of the breach and
the results will differ between the parties
• The usual remedy for a breach of contract is an award of damages. However, if a monetary
remedy is not satisfactory, the court may exercise its discretion and order any one of
several equitable remedies.

1. Rescission
• an equitable remedy, which allows an innocent party to cancel the contract by
rescinding or, if there has been misrepresentation by the other party, raising that
misrepresentation as a defence if sued for damages or specific performance by
the other party

2. Restitution
• is sometimes referred to as quasi-contract. It is not contractual and does not rely
on the plaintiff suffering loss or damage. Its basis is unjust enrichment; that is,
those situations where it would be very unfair if the defendant was to be allowed
to retain the money, or the goods or services, without payment

2. Damages
• main purpose is to enable the innocent party to receive monetary compensation
from the party responsible for the breach of contract. Damages are granted to a
party as compensation for the damage, loss or injury he has suffered through a
breach of contract
• the general principle for the assessment of damages is compensatory – section 74
• the court must determine what is the reasonable compensation and whether or not
actual damage or loss is proved to have been caused thereby – section 75

4. Specific Performance
• is a discretionary order granted by the courts directing a person to carry out their
obligations under the contract. It is not generally used in breach of contract actions
unless damages prove to be inadequate.
• the court has a discretion to refuse specific performance where the granting of it
would cause undue hardship to the defendant – section 21,Specific Relief Act 1950
• the court will exercise its discretion not to decree specific performance:
1. Where damages will provide an adequate remedy – section
20(1)(a),Specific Relief Act 1950.
2. Where the terms of the contract are uncertain – section 20(1)(c), Specific
Relief Act 1950.
3. Where there has been delay in bringing the action
4. Where there is evidence of fraud
5. Where to do so would require the constant supervision of the court
6. Contracts for personal services
• the court has the power to award damages in addition to or in lieu of specific performance
– section 18, Specific Relief Act 1950
5. Injunction
• is a discretionary court order
• may be:
1. prohibitory – preventing the breach of a contract
2. mandatory – requiring a person to perform some
contractual obligation
3. interlocutory – where it freezes the status quo between the parties until the
dispute can be heard by the court
• is an equitable remedy – can be varied or dissolved if the court discovers later that
the application was made on suppressed facts or facts upon which the order was
granted no longer exist

6. Mareva Injunction
• prevents the defendant removing or disposing of any assets in the jurisdiction until
the court makes a decision
• a plaintiff must be able to establish all the following:
1. the defendant has assets that are in the court’s jurisdiction
2. there is a real risk that the defendant will remove or get rid of any assets
before judgement
3. the plaintiff can establish a substantive cause of action such as a claim for
damages

7. Anton Piller Order

• may be made available in exceptional circumstances where it can be shown that
the defendant has incriminating evidence in their possession, which is necessary
to the plaintiff’s case and which may well be destroyed before a court order for
discovery can be made

8. Quantum Meruit
• means as much as he has earned and only arises in cases of part performance
• can arise where:
a) a defendant has prevented a plaintiff from carrying out the remainder of
their contractual duties
b) the parties cannot agree on payment
c) the parties agree on payment for the part-performance but not the actual
amount.