Learn Contract Drafting – Part 1 – Start Reading

This is the first post in a series on Contract Drafting, which I believe in and am trying to make as persuasive as I can to be taken by everyone as learning material on contract drafting in context of India and laws applicable in India.

If you are a practicing litigation lawyer, you will understand that drafting a contract, especially for an individual Indian client, is not an easy task. First and foremost, such a client likely thinks that you are copying the text from so many publicly available templates. Second, they strongly believe that they could have done the task better than you, if they were themselves a lawyer. If you are the one [the lawyer to whom I am writing to] who agrees with above, the following article is for you. Rest of you obviously know better than me. So, may be, you can correct me through your enlightening comments. Let me know if you felt that the preceding sentence reflects my ego or if it has effectively reflected my humble request to you and encouraged you to write  comments that will be sincerely be enlightening for me.

So you, the person, my beloved reader, who agrees with me about the client’s view, and you so agree because you know that there is some truth in such statements. But [Oh!, You prefer “Having said that” instead of “But”], you being a learned gentleman having profound knowledge of law does not agree with such client, because you have the license to practice law and the client, poor or otherwise, is just behaving like a client – a person claiming to know better than you only because you are being paid by that client. Yes, I understand your pain. The same pain that you have hidden beneath so many layers [Do you prefer to add a “i.e.” here, i.e., between the words “layers” and “formed”] formed of guilt, ignorance, arrogance and what not. If you are willing to make the situation better and wished so desperately for the client to see your point of view, you should stop reading this article NOW for next 2 Minutes.

Have You stopped? Stop now, please, for next 2 minutes, and use a watch.

Thank you for hearing and acting on my recommendation to stop. If you have not done so yet, please do, else continue, because I understand your arrogance which requires you to continue. I understand, as I am like you – an arrogant lawyer.

The suggestion to stop was only to make you understand that a lawyer – who wants to understand “how to draft a contract” or “how to draft any legal document” – should be humble enough to accept advice of others, before the lawyer can become qualified enough to advise others. Do you see the two words underlined above? Do you remember going past them? I mean you, if you ignored, before I specifically asked you to stop, and thought that they have been underlined only because I thought that this will be a fancy thing to do, and I have no purpose behind writing these two words as underlined. However, if you took time to see them as underlined words and thought that I am trying to tell you that they are important, you are right and have saved me embarrassment.  “Embarrassment”, you are now thinking why I would have felt embarrassed.

I will explain “my embarrassment” in next paragraph. But, coming back to the two underlined words, I did underlined them, because: (1) while writing this article [please observe how I was thinking on writing the two words to attract your attention], I wanted to write about the underlined words (I did in this paragraph, hmmm…); and, because (2) those two words are “action words”, i.e., “verbs”, which demand some action from you. So, now you know what such words can do and why I underlined them, because I wanted to talk to you through this article – ‘my purpose’ behind writing this article – by using the ‘action words’ directed at you to comply with.

I will explain now, why I would have felt embarrassed, if you did not notice those two underlined words.

Simple, if you failed to understand my intention it would have meant that my writing is not compelling enough to attract my reader’s attention. Please take special note that if you first failed to understand my true purpose in writing this article, my intention is not to hurt your big ego, but to point out to you that you are a poor lawyer, because you do not read. If you read, and if you also know ‘how to read well’, you have won half the battle [to learn contract drafting]; because, then it will be fairly easy for you to  write the contracts using the knowledge gained by reading.

But, if you do not know how to read, as I have pointed out above, it is important that you start now and improve your present reading habit. Please feel no guilt, because it is conversely true that sometimes writers fail to clearly express, if their reader fails to understand the written words. I fear that I am in a category of such writers too. Only you can prove otherwise.

So, now, I am of firm opinion that you will truly understand, why a chid is taught to read first and to write later.

Henceforth, make a firm conviction or a promise [not meant to be broken] to yourself that you will make a habit to read something at least one hour a day, everyday. I will ask you not to include the legal memos, notices, plaints and rejoinders, to your reading list.  Because, if you do, you are prone to learn more mistakes of other lawyers.

I hope you enjoyed my writing and will like to see more to come from me. I will write, if you promise to get engaged with me and be my guide as well. So, help us god. I intend to write more, with your blessings of course.

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When communication is complete under Indian Contract Act?

When a contract comes into effect?

Section 3 of the ICA reads:

The communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptance, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking, by which he intends to communicated such proposal, acceptance or revocation, or which has the effect of communicating it.

Section 4 of the ICA reads:

The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.

The communication of an acceptance is complete,—

as against the proposer, when it is put in a course of transmission to him so as to be out of the power of the acceptor;

as against the acceptor, when it comes to the knowledge of the proposer.

The communication of a revocation is complete,—

as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it;

as against the person to whom it is made, when it comes to his knowledge.

Section 5 of the ICA reads:

A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.

An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but no afterwards.

Perusal of above sections makes it clear that a contract comes into effect when communication of its acceptance is complete as against the acceptor, i.e., the acceptance reaches to the knowledge of the proposer.

Do we have an enforceable agreement when elements of Sections 3, 4 and 5 of the Indian Contract are complete, irrespective whether the Parties have signed a written contract or not?

Answer to this question is in affirmative, in certain circumstance. Why so?

To understand this, let us see some illustrations.

Illustration A: When communication is made by Post

On January 01, 2013 Party A makes a written offer, by post, to Party B to buy certain quantities of certain goods from Party B.

The Offer Letter reaches to Party B on January 03, 2013.

The Party B send its written acceptance, by post, on January 05, 2013 by post.

The acceptance letter reaches to Party A on January 08, 2013.

Illustration B: When communication is made by Email

On January 01, 2013 Party A makes an offer, by email, to Party B to buy certain quantities of certain goods from Party B.

The Offer Letter reaches Party B’s email inbox on January 01, 2013.

Party B reads the email on January 03, 2013.

Party B send its written acceptance by email on January 05, 2013.

The acceptance email reaches to Party A on January 05, 2013.

Party A reads the email on January 06, 2013.

In both cases of Illustration A and Illustration B, the contract comes into effect when the acceptance reaches to Party A and also comes to Party A’s knowledge.

Conclusion:

So, in case of Illustration A the Contract comes into effect January 08, 2013; whereas, in case of Illustration B the Contract comes into effect January 06, 2013.

Is it really so?

Continue reading below for position countering above conclusion.

The readers should think again about position stated in Illustration A. What will be your answer, if the Party A has received the letter but has not opened and read it. Can it be argued that the contract is not complete as the Party A does not yet has the knowledge of acceptance, even if it knows that the letter is from Party B?

Readers can answer to above question in comments section below.

The reader should also think again about position stated in Illustration B. What will be the answer, if the Party A has received the email and read it but marked it unread again. What will be the answer, if Party A has the not opened the email, but the email subject itself conveys the response of Party B (or when the email client is MS Outlook and Party A uses preview option). How you will prove that Party A has the knowledge of acceptance mail by Party B.

Readers can answer to above question in comments section below.

Contract concluded by electronic means [read email] is a subject which has been touched upon in detail by western courts, but Indian courts have not their share of enough cases, where they could have an opportunity to provide their opinion to the scenarios posed in Illustration B.

In year 2008, Hon’ble Supreme Court of India [Bench: Hon’ble Justice D Bhandari] in the matter of Great Offshore Ltd. Vs. Construction Company [http://indiankanoon.org/doc/947723/], answered the question “…whether [on review of correspondence exchanged] the Parties have entered into a valid contract containing an arbitration clause”, as follows:

I have heard the learned counsel appearing for the applicant and the respondent at length. I have carefully reviewed the entire correspondence between the parties. The charter party agreement that had been signed by the applicant and the respondent clearly indicated that the parties have entered into a valid and concluded contract. The other correspondence between the parties also leads to a definite conclusion: the parties have entered into a valid contract containing an arbitration clause.

The judgment touches upon the communication exchanged by email. I invite readers to go through this case in detail for better understanding of Hon’ble Supreme Court’s view on communication by email.

Now see below another Illustration C.

Illustration C:

The Party B in his acceptance email to the Party A writes that, it accepts Party A’s offer provided they sign a written agreement by a definitive date.

Here, the acceptance being qualified becomes a counter-offer by Party B, and must be accepted by Party A and such acceptance must be communicated back to Party B and upon such communication coming to Party B’s knowledge will become a contract.

Is it really so?

What will be your answer if Party B has also sent a draft contract copy attached to the email and Party A had sent a redline version of that draft contract with his comments. Does the contract conclude when the Party A’s response reaches to the knowledge of Party B?

Readers can answer to above question in comments section below.

  1. What if this exchange continued between Party A and Party B, without any conclusive agreement on the final draft?

  2. What if this exchange continued between Party A and Party B, and they agreed to a final draft, but did not sign the copy of such draft?

  3. What if Party A signed the finally agreed contract draft and sent it to the Party B, and the later did not sign and sent back a copy. But, Party B in its email to Party A said that it accepts the signed copy by Party A?

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Meeting Condition Precedents- Part One

There are two kinds of share sale-purchase agreements (“SPA“). Most of transactional lawyers see the type of SPA that involves signing and completion of the transaction with different dates. Sometimes, one principle SPA is divided in several sub-agreements. Here what is important for a contract drafter is to watch for the date which is the deal closing date. This date is most often a ‘long stop date’ by when certain events specified in the SPA must get completed. Examples of such events will be signing of agreements ancillary to the SPA, delivery of signed share certificates, delivery of updated/ audited financials, resignation by officers, etc. Once these events get completed only then the Buyer makes the payment of the consideration that is due. Sometimes the payments are handled by third party’s, most often, legal firms involved in the transaction, a if the parties’ relation are based on caution then this third party is an “escrow agent”.

Being a transactional lawyer requires that the contract drafter has thorough knowledge about different kinds of agreements. Examples of such agreements are share sale-purchase agreement, parent company guarantee, collateral warranty agreement, funder direct agreement, service agreements, escrow agreement, etc. Try reading more about such agreements and how they are drafted if you desire to become a transactional lawyer.

The due diligence exercise that you will undertake before you start drafting such agreements, will certainly shape the provisions of these agreements.

Kindly share your experiences for the benefit of other readers.

Happy commenting.

NOTE:

I will write again about the second type of SPAs, which involve same day signing and closing.

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How the word “Agreement” is different from the word “Contract”?

I recently saw a discussion on Linkedin, one of the popular website for professionals. Someone has asked: “Is there any difference in an agreement and a contract?” In my opinion: yes there is a clear difference, at least in the context of Indian Contract Act of 1872.

Some of the popular opinions offered were pointing to single conclusion, i.e., of no difference.

Oxford English Dictionary defines

“Agreement” as “[count noun] a negotiated and typically legally binding arrangement between parties as to a course of action[1]”, and

“Contract” as “a written or spoken agreement, especially one concerning employment, sales, or tenancy, that is intended to be enforceable by law[2]”.

Both the above definitions are almost identical in meaning, but yet leave much for general public to decipher to understand their true meaning. I agree that almost every one uses and understand the two terms to be identical.

Indian Contract Act of 1872 on the other hand has clear language that differentiates between the two words. I challenge you to find any other piece of legislation in any jurisdiction, which provides such clear demarcation between the two words.

Section 2(e) of the Act says: “Every promise and every set of promises, forming the consideration for each other, is an agreement”.

Section 2(h) of the Act says: “An agreement enforceable by law is a contract”.

So from above two simple definitions it is clear that as far as Indian Contract law is concerned an “Agreement” is specie of “Contract”.

You will, however, find several journals, court judgement and articles on topic of law using the two words interchangeably.

Will using “Agreement” or “Contract” in your writing affects the understanding of your readers? In my opinion it depends upon the intent of your writing, i.e., if you want to show to your readers the true difference in meaning and scope of the two words. Otherwise, you may safely use either of the two words in your contract drafts, if you use only one word throughout your draft. Why? Because, so long as all elements under Indian Contract Act are satisfied, it makes no difference which word you are using. Judges are not likely to strictly interpret these words while understanding the true meaning of terms of a private contract between two parties. To interpret the true meaning of the terms of such contracts, judges usually employ the test of a person of reasonable skill and knowledge having understanding of the subject matter of the contract.

I sincerely hope that this puts to rest any animated discussions on social forums about differences between the two words.

For another

valid counter-opinion

(not based on Indian Contract law) and some good opinion see the post from

Knowledge to Negotiate

Blog by

Mr. John “Jack” Tracy.

 

Can some one find out the true meaning of word “Deed” under Indian law?



[1] http://oxforddictionaries.com/definition/agreement?q=agreement

[2] http://oxforddictionaries.com/definition/contract?q=contract

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Website Terms-Termination clause

I have seen and drafted many termination clauses in past for User terms and conditions of various kinds of websites. Often, reluctantly, I have drafted a termination clause, which I never believed would stand on its own legs.

Have you come across such termination clauses, which you think are not fair to you as a consumer?

Let me have your thoughts on this, and I will delve deeper and discuss it with you in detail.

Happy commenting…

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Liquidated Damages or Consequential Damages…what Damages?

A bare reading of Section 73, Indian Contract Act of 1872, reflects following broad principles:

  • compensation is payable only for breach of contract;
  • only the non-defaulting party is entitled to receive such compensation;
  • such compensation will be paid by the defaulting Party;
  • compensation is payable for loss or damage caused to the non-defaulting party;
  • such loss or damage
    • either naturally arose in the usual course of things from such breach; or
    • was in parties knowledge, at the time of making of contract, likely to result from breach.
  • Loss or damage suffered by non-defaulting party was not remote or indirect;

A similar reading of Section 74, Indian Contract Act of 1872, reflects following broad principles (limiting the scope of compensation payable under Section 73 above):

  • compensation is payable only for breach of contract;
  • compensation is limited to the maximum extent of:
    • a named sum in the contract, which parties have agreed, will become payable in case of breach; or
    • a penalty clause, which parties have agreed, will be enforced against the defaulter in case of breach;
  • the non-defaulting (complaining) party is entitled to a reasonable compensation not exceeding the above named sum or the penalty provision;
  • such reasonable compensation is payable by the defaulter, notwithstanding non-defaulting party is able to prove any actual damage or loss due to such breach;

In juxtaposition to the above two sections, the bare reading of Section 75, Indian Contract Act of 1872, suggest the following principle:

  • Contract must have been terminated rightfully;
  • Party rightfully terminating the contract is entitled for compensation;
  • Compensation payable is for ANY damage that such party sustained (proof is needed) through non-fulfilment of the contract leading to rightful termination;

Above three sections not only outline the broad principles that regulate the limitation associated with compensation that a party can expect under law, but also provides guidance to contract drafters to limit the scope of any clause in a contract (especially in a contract whose soul is Indian) mandating damages beyond these boundaries proposed by these principles.

Section 73, therefore, speaks of a popularly known clause called “Consequential Damages Clause”, whereas Section 74 speaks of another popularly known clause called “Liquidated Damages”.

Keeping in mind the limits imposed by Section 73 and guidance provided by Section 74 of the Indian Contract Act, it is clear that any “Consequential Damages” is not permitted under Indian Law, whether or not you address it in your contracts, which are essentially related to Indian laws, by reason that the Parties to contract are from India, or that the governing law chosen by the Parties are of India or that the subject-matter of the contract is essentially linked to India.

My recommendation, however, for international contracts, would be to address this clause in such contract; irrespective of the fact that parties may chose in such contracts to include or exclude the Consequential Damages.

Let us consider an example, why I am suggesting this.

Example: In this example, XYZ Inc. – an American company from California – enters into a license agreement with ABC (P) Ltd., its Indian counterpart- a company from New Delhi. The subject matter of this agreement is a software which XYZ has developed and which ABC desires to license for its use within the Company. For the purposes of this example, let us also assume that the IPR of software in question is registered both in USA and India.

In the First Scenario, the parties have chosen the governing law as USA for resolution of disputes.  There is a breach of contract by XYZ, the American party, and Indian party approaches the Courts at California claiming damages for breach of contract, based on the contract terms, which inter-alia included no clause on Consequential Damages. In such a situation Indian party may successfully claim Consequential Damages.

In contrast consider the Second Scenario, where the parties have chosen the governing law as India for resolution of disputes. There is a breach of contract by ABC, the Indian party, and the American party approaches the Courts at New Delhi claiming damages for breach of contract, based on the contract terms, which inter-alia included a clause on Consequential Damages providing that the “defaulting party will be liabel for Consequential Damages” suffered by the non-defaulting party. In such a situation American party cannot claim any relief based on Consequential Damages Clause.

The correct approach would have been to include a “Liquidated Damages” provision in the contract, which is permitted by Section 74 of the Indian Contract Act of 1872. Please also note that no proof is necessary that any actual damage was suffered by the non-defaulting party. However, the non-defaulting party- in this case XYA- is required to prove that there was a breach of contract by the defaulting party –ABC. XYZ may be required to prove the reasonable of the limit specified by the Liquidated Damages clause, which can be done either through the language of the Clause (e.g., Liquidated Damages payable is by forfeiture of earnest money, advance, etc.)  or through the facts and circumstances.

Importance of Liquidated Damages clause in international contracts, therefore, is paramount. I highly recommend inclusion of a Liquidated Damages clause in such contracts, especially where the financial stakes are very high.

Now, readers are requested to read my discussion on “Limitation of Liability Clauses”, and suggest their understanding of the concept of Liquidated Damages in Indian context.

Kindly take note that it is better to specify a monetary limit, reasonable in light of the facts surrounding the contract, to the Liquidated Damages.

Please note that Section 75 of the Indian Contract Act of 1872 is a strong tool in the arsenal of a party acting fairly under a contract. One of my readers to this Blog had earlier told me about a situation where the contract in question had no Termination Clause. Section 75, indirectly, addresses that situation and mandates that a non-defaulting party may terminate the agreement where the other party is in breach of the contract in question and also, directly, gives the right to non-defaulting party to claim compensation for ANY damage that such non-defaulting sustained through non-fulfilment of the contract leading to rightful termination.

Thus, above discussion clearly shows the strengths of Indian Contract Act of 1872, despite the fact that it was rarely amended by Indian Law makers in last one hundred and thirty nine years.

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Section 75. Party rightfully rescinding contract entitled to compensation.

 

A person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the nonfulfilment of the contract.

 

Illustration

 

A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights In every week during the next two months,  and  B  engages  to  pay her  100  rupees  for  each  night’s performance.  On the sixth night, A wilfully absents herself from the theatre, and B, in consequence, rescinds the contract.  B is entitled to claim compensation for the damage which he has sustained through the non-fulfilment of the contract.

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Section 74. Compensation for breach of contract where 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, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

Explanation.     

A stipulation for increased interest from the date of default may be a stipulation by way of penalty.

Exception.         

When any person enters into any bail-bond, recognizance or other instrument of the same nature, or, under the provisions of any law, or under the orders of the Central Government or of any State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.

Explanation.     

A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested.

Illustrations

(a)    A contracts with B to pay B Rs. 1,000, if he fails to pay B Rs. 500 on a given day.  A fails to pay B Rs. 500 on that day.  B is entitled to recover from A such compensation, not exceeding Rs. 1,000, as the Court considers reasonable.

(b)   A contracts with B that, if A practises as a surgeon within Calcutta, he will pay B Rs. 5,000.  A practises as a surgeon in Calcutta.  B is entitled to such compensation, not exceeding Rs. 5,000, as the Court considers reasonable.

(c)    A gives a recognizance binding him in a penalty of Rs. 500 to appear in Court on a certain day.  He forfeits his recognizance.   He is liable to pay the whole penalty.

(d)   A gives B a bond for the repayment of Rs. 1,000 with interest at 12 percent at the end of six months, with a stipulation that,  in case of default, interest shall be payable at the rate of 75 percent from the date of default.  This is a stipulation by way of penalty, and B is only entitled to recover from A such compensation as the Court considers reasonable.

(e)   A, who owes money to B a money-lender, undertakes to repay him by delivering to him 10 maunds of grain on  a  certain  date, and stipulates that, in the event of his not delivering  the  stipulated amount  by  the  stipulated  date, he shall be liable to deliver 20 maunds.   This is a stipulation by way of penalty, and B is only entitled to reasonable compensation in case of breach.

(f)     A undertakes to repay B a loan of Rs. 1,000 by five equal monthly instalments, with a stipulation that in default of payment of any  instalment, the whole shall become due.  This stipulation is not by way of penalty, and the contract may be enforced according to its terms.

(g)    A borrows Rs. 100 from B and gives him a bond for Rs. 200 payable by five yearly instalments of Rs. 40, with a stipulation that, in default of payment of any instalment, the whole shall become due.  This is a stipulation by way of penalty.

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Section 73. Compensation for loss or damage caused by breach of contract

When a contract has been broken, the party who suffers by such breach is  entitled to receive, from the party who has broken  the  contract, compensation  for  any  loss or damage caused to  him  thereby,  which naturally  arose  in the usual course of things from  such  breach, or which  the parties knew, when they made the contract, to be likely  to result from the breach of it.

Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

Compensation for failure to discharge obligation resembling those created by contract.-When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.

Explanation.

In  estimating  the loss or damage  arising  from  a breach  of contract, the means which existed of remedying  the  inconvenience  caused-by the non-performance of the contract must be  taken into account.

Illustrations

(a)    A contracts to sell and deliver 50 maunds of saltpetre to B, at a certain price to be paid on delivery.  A breaks his promise.   B is entitled to receive from A, by way of compensation, the sum, if any, by which the contract price falls short of the price for which B might have obtained 50 maunds of saltpetre of like quality at the time when the saltpetre ought to have been delivered.

(b)   A hires B’s ship to go to Bombay, and there take on board, on the first of January, a cargo which A is to provide and to bring it to Calcutta, the freight to be paid when earned.  B’s ship does not go to Bombay,  but A has opportunities of procuring suitable conveyance  for the  cargo  upon  terms  as advantageous as  those  on  which  he  had chartered  the ship.  A avails himself of those opportunities, but is put to trouble and expense in doing so.  A is entitled to receive compensation from B in respect of such trouble and expense.

(c)    A contracts to buy of B, at a stated price, 50 maunds of rice, no time being fixed for delivery.  A afterwards informs B that he will not accept the rice if tendered to him.  B is entitled to receive from A, by way of compensation, the amount, if any, by which the contract price exceeds that which B can obtain for the rice at the time when A informs B that he will not accept it.

(d)   A contracts to buy B’s ship for 60,000 rupees, but breaks his promise.  A must pay to B, by way of compensation, the excess, if any,  of the contract price over the price which B can obtain for  the ship at the time of the breach of promise.

(e)   A, the owner of a boat, contracts with B to take a cargo  of jute to Mirzapur, for sale at that place, starting on a specified day. The  boat, owing to some avoidable cause, does not start at  the  time appointed,  whereby  the arrival of the cargo at Mirzapur  is  delayed beyond  the  time when it would have arrived if the  boat  had  sailed according to the contract.  After that date, and before the arrival of the cargo, the price of jute falls.  The measure of the compensation payable to B by A is the difference between the price which B could have obtained for the cargo at Mirzapur at the time when it would have arrived if forwarded in due course, and its market price at the time when it actually arrived.

(f)     A contracts to repair B’s house in a certain manner, and receives payment in advance.  A repairs the house, but not according to contract.  B is entitled to recover from A the cost of making the repairs conform to the contract.

(g)    A contracts to let his ship to B for a year, from the first of January, for a certain price.  Freights rise, and, on the first of January, the hire obtainable for the ship is higher than the contract price.   A breaks his promise.  He must pay to B, by way of compensation, a sum equal to the difference between the contract price and the price for which B could hire a similar ship for a year on and from the first of January.

(h)   A contracts to supply B with a certain quantity of iron at a fixed price, being a higher price than that for which A could procure and deliver the iron.  B wrongfully refuses to receive the iron.   B must pay to A, by way of compensation, the difference between the contract price of the iron and the sum for which A could have obtained and delivered it.

(i)      A  delivers  to  B,  a common  carrier,  a  machine,  to  be conveyed,  without  delay, to A’s mill informing B that  his  mill  is stopped  for want of the machine.  B unreasonably delays the delivery of the machine, and A, in consequence, loses a profitable contract with the Government.   A is entitled to receive from B, by  way  of compensation, the average amount of profit which would have been  made by  the  working of the Mill during the time that delivery of  it  was delayed, but not the loss sustained through the loss of the Government contract.

(j)     A, having  contracted with B to supply B with 1,000 tons  of iron at 100 rupees a ton, to be delivered at a stated time,  contracts with  C  for the purchase of 1,000 tons of iron at 180 rupees  a  ton, telling  C that he does so for the purpose of performing his  contract with  B.  C fails to perform his contract with A, who cannot procure other iron, and B, in consequence, rescinds the contract.  C must pay to A 20,000 rupees, being the profit which A would have made by the performance of his contract with B.

(k)    A contracts with B to make and deliver to B, by a fixed day, for a specified price, a certain piece of machinery.   A does  not deliver  the  piece  of  machinery  at  the  time  specified,  and  in consequence of this, B is obliged to procure another at a higher price than that  which  he was to have paid to A,  and  is  prevented  from performing a contract which B had made with a third person at the time of  his contract with A (but which had not been then  communicated  to A), and is compelled to make compensation for breach of that contract. A  must pay to B, by way of compensation, the difference  between  the contract price of  the piece of machinery and the sum paid by B for another, but  not the sum paid by B to the third person by way of compensation.

(l)      A,  a builder, contracts to erect and finish a house  by  the first  of January, in order that B may give possession of it  at  that time  to C, to whom B has contracted to let it.  A is informed of the contract between B and C. A builds the house so badly that, before the first  of January, it falls down and has to be re-built by B, who,  in consequence, loses the rent which he was to have received from C,  and is  obliged to make compensation to C for the breach of his  contract. A must make compensation to B for the cost of rebuilding the house, for the rent lost, and for the compensation made to C.

(m) A sells certain merchandise to B, warranting it to be of a particular quality, and B, in reliance upon this warranty, sells it to C with a similar warranty.  The goods prove to be not according to the warranty, and B becomes liable to pay C a sum of money by way of compensation.  B is entitled to be reimbursed this sum by A.

(n)   A contracts to pay a sum of money to B on a day specified.   A does not pay the money on that day; B, in consequence of not receiving the money on that day, is unable to pay his debts, and is totally ruined.   A  is  not  liable to make good to  B  anything  except  the principal sum he contracted to pay, together with interest up to  ‘the day of payment.

(o)   A contracts to deliver 50 maunds of saltpetre to B on the first of January, at a certain price.  B afterwards, before the first of January, contracts to sell the saltpetre to C at a price higher than the market price of the first of January.  A breaks his promise. In estimating the compensation payable by A to B, the market price of the first of January, and not the profit which would have arisen to B from the sale to C, is to be taken into account.

(p)   A contracts to sell and deliver 500 bales of cotton to B on a fixed day.  A knows nothing of B’s mode of conducting his business.  A breaks his promise, and B, having no cotton, is obliged to close his mill.   A is not responsible to B for the loss caused to B by the closing of the mill.

(q)   A contracts to sell and deliver to B, on the first of January, certain cloth which B intends to manufacture into caps of a particular kind, for which there is no demand, except at that season.  The cloth is not  delivered till after the appointed time, and too late  to  be used  that year in making caps.  B is entitled to receive from  A,  by way of compensation, the difference between the contract price of  the cloth  and  its  market price at the time of  delivery,  but  not  the profits  which he expected to obtain by making caps, nor the  expenses which he has been put to in making preparation for the manufacture.

(r)     A, a ship-owner, Contracts with B to convey him from  Calcutta to Sydney in A’s ship, sailing on the first of January, and B pays  to A,  by way of deposit, one-half of his passage-money.  The  ship  does not  sail on the first of January, and B, after being  in  consequence detained  in Calcutta for some time and thereby put to  some  expense, proceeds  to Sydney in another vessel, and, in  consequence,  arriving too  late in Sydney, loses a sum of money.  A is liable to repay to  B his  deposit with interest, and the expense to which he is put by  his detention  in Calcutta, and the excess, if any, of  the  passage-money paid for the second ship over that agreed upon for the first, but  not the sum of money which B lost by arriving in Sydney too late.

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