Unit 1

TYBBA-SEM-V/LAB/2021-22/Unit -1 INDIAN CONTRACT ACT 1872
PROF. V.B.SHAH INSITUTE OF MANAGEMENT,

AMROLI,SURAT
COURSE: B.B.A
YEAR: F.Y.BBA(SEM –I)
SUBJECT: LEGAL ASPECT OF BUSINESS
Faculty: Prof. Soyeb Jindani & Prof. Nilesh Patel
Unit: 1 INDIAN CONTRACT ACT 1872 (20%)
Contents
1.1 INTRODUCTION ......................................................................................................................................................... 2
1. 2 DEFINITIONS: ....................................................................................................................................................... 2
1.3 ESSENTIAL ELEMENTS OF A VALID CONTRACT (U/s 10): .............................................................. 6
1.4 KINDS OR CLASSIFICATION OF CONTRACTS......................................................................................... 9
1.5 DISCHARGE OF VALID CONTRACT ..................................................................................................................11
1.6 BREACH OF CONTRACT AND REMEDIES FOR BREACH .........................................................................17
Prof. Soyeb Jindani & Prof. Nilesh Patel

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Prof. V.B.Shah Institute of Management, Amroli,Surat
1.1 INTRODUCTION
The law of contract in India contained in Indian Contract Act 1872, which is based on English
common Law. It extends to whole of India except the state of Jammu and Kashmir. It came
into force on the 1st Sep. 1872. The Act lays down general principles governing all contracts,
but not the rights and duties of the parties. The rights and duties are decided by the parties
themselves.
In the community, man comes into contact with people in different capacities. He comes into
contact, for example, with Government as a taxpayer, with a landlord as a tenant and so on and
so forth. These contacts are the inevitable outcome of modern culture. In all these associations,
he is expected to observe a code of conduct or a set of rules.
The Law of Contract is the most important branch of Mercantile Law. Without such a law it
would be difficult to carry on any trade or business in a smooth manner.
The law of contract is applicable not only to commercial activities but also to all day-to-day
personal dealings. In fact, each one of us enters into a number of contracts from sunrise to
sunset person buys various goods or purchases magazines or gives his watch for repairs or
borrows a bike for outing. he is actually entering into contract. All these transactions are subject
to the provision of the law of contract.
1. 2 DEFINITIONS:
1. WHAT IS LAW:
Set of rules enforced by an authority (State or central Govt)
2. CONTRACT(2h):
Meaning
• A contract may be defined as an agreement between two or more persons which can be
enforced in a court of law.
• A contract is a legally binding document between at least two parties that defines and
governs the rights and duties of the parties to an agreement.
• An agreement between parties that creates mutual legal obligations.
• A contract can be either oral or written.
Some definition of contract as under:
According to salmond
“A contract is an agreement creating and defining obligations between the parties”.
According to Pollock
"Every agreement and promise enforceable at law is a contract."-Pollock
According to section 2 (h)

A contract is an agreement enforceable by law is contract.
Eg. Right Obligation
------------------------------------------------------------------------

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X Seller Rs. 5,000 Deliver 10 kg Rice

Y Buyer 10 kg Rice Payment of Rs. 5,000
X and Y entered into contract where X promise to deliver 10 kg of Rice to Y, in exchange Y

promise to pay Rs. 5,000 so X‟s right to get Rs 5000 and Y‟s right is to get 10 kg rice at the
same time X‟s obligation is to deliver 10 kg rice and Y‟s obligation is to make payment of Rs.
5,000 to X.
Contract = an Agreement + enforceability by law.
The contract consists of two elements:

(I) An agreement and
(II) Legal Obligation i.e. enforceability by law.
(i) AGREEMENT -
According to Section 2(e) “Every promise and every set of promises, forming the
consideration for each other is an obligation.”
An Agreement consists of an offer by one party and its acceptance by other. In other words, an
agreement comes into existence only when one party makes a proposal to the other party and
that other party gives acceptance.
AGREEMENT = OFFER + ACCEPTANCE
Ex: X says to Y, he will sell his house to him for Rs 3 crore. It is an express proposal.
(ii) Legal Obligation

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In order that an agreement may be regarded as a contract, it must give rise to a legal obligation
i.e., it must be enforceable by law. Any obligation (duty) which is not enforceable by law is
not regarded as a contract. Social, moral or religious agreements do not create any legal
obligation.
For example, an agreement to take lunch together or to go to a picnic is not a contract because
it does not create a duty enforceable by law. Such agreements are purely of a social nature
where there is no intention to create legal relationship. Hence, they do not result in contracts.
In case of business agreements, however, the usual presumption is that the parties intend to
create a legal relationship.
For example, an agreement to sell a scooter for Rs. 20,000 is a contract because it gives rise
to an obligation enforceable by law. In this agreement if there is default by either party, an
action for breach of contract can be enforced through a court of law provided all the essentials
of a valid contract are present in the agreement.
3. OFFER/Proposal –
According to Sec.2(a), when a person made a proposal, when he signifies to another his
willingness to do or to abstain from doing something.
Ex: X says to Y, he will sell his house to him for Rs 3 crore. It is an express proposal.
4. PROMISE –
According to sec.2(b), when a person made a proposal to another to whom proposal is made,
if proposal is assented (Approved) there to, the proposal is said to be accepted. A proposal,
when accepted, becomes a promise.
Ex: Y says to X, Yes Mr.Y will buy house from Mr.X for Rs 3 crore. It is a promise.
Hence the difference between an offer (proposal) and a promise lies in acceptance of the offer
(proposal).

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❖ DIFFERENCE BETWEEN AGREEMENT AND CONTRACT
Difference Points Agreement Contract

1. Definition with Section 2 (e) of the Contract Act Section 2 (h) of the Contract
Section defines agreement as “every Act states that “an agreement
promise and every set of promises enforceable by law is a
forming the consideration for contract”.
each other”.
2. Meaning When one person offers to another An agreement which creates
to do or not to do certain act and legal obligations is a contract.
the other party accepts it, it is an
agreement.
3. Creation Offer and its acceptance form an Agreement and its
agreement. enforceability create a contract.
4. Object An agreement may not create a A contract necessarily creates a

legal obligation. legal obligation.
5. Comparison Every agreement may not be a All contracts are agreements.

contract.
6. Formula Proposal + Acceptance = Agreement + Enforceability =
Agreement Contract
DISTINCTION BETWEEN VOID AND VOIDABLE

CONTRACT
Basis of Void Contract Voidable Contract
distinction
1. Definition A contract which ceases A contract which is enforceable by law at the
to beenforceable by law option ofthe aggrieved party is a voidable
become void, when it contract.
ceases to be
enforceable.
2. Period of It remains valid till it does It remains valid if the aggrieved party does not
validity notcease to be elect toavoid it within a reasonable time.
enforceable.
3. Will of the Its validity is not affected by Its validity is affected by the will of the
party the will of any party. aggrieved
It is decided by the party. Aggrieved party has option to treat it
Law Court. eitherbinding or repudiate it.

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4. Causes Contracts become void Contract is voidable when the consent of the
due to change in party iscaused by coercion, undue influence,
circumstances or in the fraud or
law of land. misrepresentation. Sometimes, it may be
voidableunder the provisions of the Secs. 39, 53
and 55.
1.3 ESSENTIAL ELEMENTS OF A VALID CONTRACT (U/s 10):

Questions: Define Contract. Discuss the essential elements of a contract. OR “ All
agreements are not contract but all contracts are agreements” with this statement explain
essential factors of valid contract.
We know that a contract is an agreement which is enforceable by law. It is enforceable only
when all the conditions of enforceability are fulfilled. Following are the general conditions of
enforceability and legal rules for a valid contract. In order to become a contract, an agreement
must have the following essential elements:
1. Offer and its acceptance
2. Intention to create Legal obligation
3. Free consent of the parties
4. Capacity of Parties
5. Lawful consideration
6. Lawful object
7. Agreement Not declared void
8. Certainty of meaning
9. Performance must not be impossible
10. Legal Formalities
1) Offer and its acceptance: There must be an offer and its acceptance. In an agreement
there must be at least two parties, one of them making the offer and the other accepting it.
In other words, there must be an offer by one party and its acceptance by the other. The
offer when accepted becomes agreement.
2) Intention to create legal Obligation:
An agreement must create legal obligations (i.e., an obligation which is enforceable by
law). An obligation is the legal duty to do or abstain from doing a definite act or acts.
Moreover, the parties must have the intention to create legal obligations. If the parties do
not intend to create legal obligations, there is no contract between them. In commercial or
business transactions, the usual presumption is that the parties intended to create legal
obligations. It may be noted that an agreement which gives rise to a moral or social
obligation is not a contract.
Example: A invited B to a dinner. B accepted the invitation. It is a social agreement. If
A fails to serve dinner to B, he (B) cannot go to Courts of Law for enforcing the
agreement. Similarly, if B fails to attend the dinner, A cannot go to Courts of Law for

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enforcing the agreement.
3) Free Consent of parties:

The contract must have been made with free consent of the parties. It may be noted that
the consent is not free, when it is obtained by (i) coercion (ii) undue influence(iii) fraud
(vi) misrepresentation of facts etc. If the consent of the parties is not free, then no valid
contract comes into existence.
Example: A threatened to shoot B's son unless B sings a promissory note for Rs. 20,000
in favour of A. B signed the promissory note under the threat. In this case, B's consent
is not free as it is obtained under pressure, therefore the promissory note is not valid.
4) Capacity of Parties: The parties to an agreement must be competent to contract.

Otherwise it cannot be enforced by a court of law. In other words, they must be capable
of entering into a contract.
It may be noted that
• minors,
• persons of unsound mind or
• disqualified by law
are not competent to contact.
If the parties are not competent to contract then no valid contract comes into existence.
Example: A, a minor, borrowed Rs. 500 from B and agreed to repay it within two months.
This is not a valid contract as A is not competent to contract.
5) Lawful Considerations:
The agreement must be supported by a lawful consideration. The lawful consideration is
that which is not fraudulent, forbidden by law, immoral or opposed to public policy etc.
If the consideration is not lawful, then no valid contract comes into existence.
Example: A promised to obtain an employment for B in a government department, and B
promised to pay Rs. 10,000 to A. In this case, the agreement is not valid as the consideration
for it is unlawful.
Example: A sells his car worth Rs. 2,00,000 to B for Rs. 50,000 only. This is a valid promise
provided the consent of A is free.
6) Lawful object:
The object of the agreement must be lawful. It may be noted that a lawful object is that
which is neither fraudulent, forbidden by law, immoral nor opposed to any public policy
etc. If the object is not lawful, then no valid contract comes into existence.
Example: A, B and C entered into an agreement for the division of gain, among them,
which is to be acquired by them by fraud. In this case, the agreement is not valid as its
object is unlawful.
Example: if A rents out a house for use as a gambling, the agreement is void because
the object of the agreement is unlawful. If the object is unlawful for any of the reasons

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mentioned in Section 23, the agreement shall be void. Thus, the consideration as well
as the object, of the agreement should be lawful.
7) Agreement not declared void:
The agreements must not have been expressly declared to be void by any law in force in
the country. If certain agreements are expressly declared to be void by the law of the
country, then such agreements if entered the into, shall not be enforceable by Courts of
Law.
They are agreement in restraint of marriage, agreement in restraint of legal
proceedings, agreement in restraint of trade, etc.
Example: A agreed to pay Rs. 500 to B if he (B) does not marry throughout his life. B promised
not to marry at all. In this case the agreement is not valid because agreements in restraint of
marriage are expressly declared to be void (i.e., not enforceable by law).
8) Certainty of meaning: The agreement must be certain; The meaning of the agreement
must be certain. In other words, an agreement whose meaning is not certain, is not valid.
Example: A agreed to sell his white horse for Rs. 2500 or Rs. 3000 to B. There is nothing to
show which of the prices was to be given. In this case the agreement is not valid as it is
uncertain.
For example, Anil, agreed to sell 200 tons of oil to Sunil. Here it is not clear what kind of oil
is intended to be sold. Therefore, the agreement is not valid on the ground of uncertainty
9) Possibilities of performance: The terms of the agreement must also be capable of

performance physically as well as legally. An agreement to do an impossible act is
invalid.
For example: X promise to Y that he will run at speed 400 km/hour or bring star from sky. All
these act are impossible of performance hence, agreement is not treated as a valid.
Example: A agreed with B to discover treasure by magic. In consideration, B agreed to pay
Rs. 500 to A. In this case, the performance of the agreement is impossible, therefore it is not a
valid agreement.
10) Legal Formalities:

Generally the contracts may be oral or written. But in special cases, it lays down that the
agreement must be in writing or registered to be valid.
For example, a promise to pay a time barred debt must be in writing and an agreement for
a sale of immovable property must be in writing and registered under the Transfer of
Property Act, 1882. In such a situation, the agreement must comply with the necessary
formalities as to writing, registration, etc. If these legal formalities are not carried out,
then, the contract is not enforceable by law.
Thus, all the above elements must be present in an agreement so that it becomes a valid
contract. If any one of them is missing, the agreement will not be enforceable by law.

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1.4 KINDS OR CLASSIFICATION OF CONTRACTS
A. On the basis of Enforceability/Validity
1.Valid Contract
• A contract that fulfils the provisions under Section 10 of the Indian Contract Act, 1872 is a
valid contract.
• For Example: A offers to sell his house for Rs.5 lakhs to B. B agrees to buy it for this price.
It is a valid contract.
2. Void Contract
• An agreement which was legally enforceable when entered into but which has become void
due to change in circumstances and impossibility of performance.
• For Example: A contract between a citizen of China and India is a valid contract during peace
but if war breaks out between the two countries, the agreement will become void.
3.Voidable Contract
According to Section 2 (i) "An agreement which is enforceable by law at the option of one or
more of the parties but not at the option of the others is a voidable contract."

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Thus a voidable contract is valid and enforceable until it is repudiated by the party entitled to
avoid it.
• For Example: Ram threatens to kill Rohan if he does not agree to sell his property at very
lower price to him. Here essential element of free consent is absent.
4. Unenforceable Contracts
. It is contract which is otherwise valid, but cannot be enforced because of some technical defect
like absence of a proper stamp.
• Such contracts will not be enforced by the courts until and unless the defect is rectified.
• For Example: A borrows Rs. 10,000 from B and makes a promissory note and a one rupee
stamp is to be pasted on the promissory note. The agreement though complete is unenforceable
because of the technical defect promissory note being under stamped.
B. On the basis of Formation

Classification of Contract on the basis of their Formation
1.Express Contract
An express contract is one entered into by words which may be either be spoken or written.
For Example: A offers to sell his house for Rs. 5 lakhs to B by word of mouth and B agrees to
buy it for this price by word of mouth or in writing.
2.Implied Contract
Contracts which are not expressed orally or in writing but are reflected in thinking behaviour
of parties concerned.
• For Example: The Bus driver merely stops the bus at the bus stop and the passenger board
without being invited.
3.Constructive or Quasi Contract

• It is a contract in which there is no intention on either side to make a contract, but the law
imposes a contract.
• For Example: A finder of lost goods is under obligation to find out the true owner and return
the goods.
4.E-Com Contracts / Contracts over Internet
These contracts are entered into between the parties using internet. In electronic commerce,
different parties/ persons create networks which are linked to other networks through EDI
(Electronic Data Interchange). This helps in doing business transactions using electronic mode.

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C. Classification of Contract on the basis of Performance
1.Executed Contract
An executed contract is one where both the parties have performed their obligations.
• For Example: A sells a TV set to B for Rs.20,000. B pays the price and A hands over TV set
to B.
2.Executory Contract
Where the contract is yet to be performed either wholly or partially or one or both the parties
have yet to perform their obligations.
• For Example: A agrees to make furniture for B for Rs. 5,000.Mr. A has yet to make furniture
and Mr. B has not made the payment. So, both A & B are yet to perform their obligations.
Suppose A has made the furniture but B has yet to make payment, it is executed on A's part but
executory on B's part.
3.Unilateral Contract
• In this one party to the contract has fulfilled the commitment while the other party has yet to
do it.
• For Example: A has made contract with B to sell goods to him on one month's credit and
immediately dispatches the goods. A has fulfilled his commitment while B has yet to do it.
4.Bilateral Contract
A contract in which both parties have fulfilled their commitment simultaneously.
• For Example: A delivered goods to B and B makes the payment immediately.
1.5 DISCHARGE OF VALID CONTRACT

Definition: Discharge of contract means terminations of the contractual relationship between
the parties. On the termination of such relationship the parties are released from their
obligations in the contract.
Modes of discharging Contract:
A contract may be discharged in any one of the following ways.
1.By performance
2.By agreement or consent
3.By impossibility of performance
4.By lapse of time
5.By operation of law
6.By breach of contract.

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1. Discharge of contract by performance: - This is the most popular and usual way of
discharging contracts. When the parties to a contract fulfil their obligations arising under the
contract within the time, and in the manner prescribed, it is known as discharge of performance.
Performance of contract may be of two types: - Actual performance and attempted
performance
a. Actual performance: - In order to claim performance, the parties to a contract must
have actually performed their part of contract. It is actual performance
b. Attempted performance or tender: - A person who is bound to perform a promise
will be ready to perform and will also offer to perform his promise but sometimes the
other party may refuse to accept that performance. This is known as “attempted
performance”. All attempted performance is legally treated as equivalent to actual
performance except in case of payment of money.
For example, A has borrowed sum of Rs. 15000 from for three months. On the due date,
a makes payment, But B does not accept it. In this case A will not be released from his
liability of making that payment to B; however, he will not be liable for paying any interest
on that after three months.
2. Discharge of contract by mutual understand/Consent: -
Since a contract is created by mutual agreement, it can also be discharged by
mutual agreement.
Contract may be discharged by agreement in the following ways:
I. By Novation (Substitution of a new contract):-
• When both parties, by mutual consent, agree to make a new contract to replace
the existing one between the parties, it is called as Novation.
• In this process, the new contract is substituted for an existing contract.
For example: A makes an agreement with B to supply him 500 quintals of rice at Rs
900 per quintal on a certain date. Before the date of delivery, B proposes to buy
800 quintals of wheat from A at Rs 250 per quintal instead of rice, to which A
agrees. This would amount to a novation of the contract between the two.
II. By alteration: -
• Alteration means change in terms of original contract by mutual consent.

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• Alteration can be regarding time, place, quantity or price, etc.

• For example: A promises to supply 3000 meters of a certain cloth at 10 per meter
to B within 3 months. Later, A and B make an alteration in the contract to the effect
that A will supply 200 metres of a superior quality of cloth at another price within
4 months. This alteration discharges the old contract between the two.
III. By Rescission:
• Rescission means cancellation of the contract. Cancellation of contract by
agreement between the parties at any time before it is discharged by performance
or in some other way and as a result none requires to perform.
• For example: Viral Promises to supply certain goods to hiral. Before the actual date
of performance, viral and hiral mutually agree that contract will not be performed.
The contact is rescinded mutually. Non-performance of contract by both the parties
for long period. And none of the party has objected, amounts to implied rescission.
IV. By remission: -
• Remission means acceptance of lesser performance than what was actually due
under the contract is called a remission or waiver.
• For example, A owes to B Rs. 50000. A pays to Rs. 25000 and B accepts the
amount in settlement of the whole debt. In this case A is discharged from his liability
of Rs. 50000.
V. By waiver: -
• Waiver means to let go or the surrender of the contractual right. Deliberate
abandonment (to leave) or giving up of a right which a party is entitled to under a
contract, where upon the other party to the contract is released from his obligation.
For example, NP promises to paint a picture for SJ. SJ afterwards forbids (ban) him
to do so. SJ is no longer bound to perform the promise. Hence, the contract is
terminated by waiver. Similarly, Krishan agree to repair the laptop of Kapil. Kapil
later on stops Krishna from repairing the Laptop. Krishana is no longer bond to
perform the promise. Thus, in both the example contract is terminated by waiver.
3 . Discharge by lapse of time: -
• When a period is specified for the performance of the contract, it is known as period of
limitation. If the contract is not performed and the promisee fails to take any action
within the period of limitation, then the contract is terminated or discharged by lapse of
time. In case of contracts, the period of limitation is three years. After the expiry of this
period the court will not allow to enforce the contract and it will be discharged.
• For Example, where a debtor has failed to repay the loan on the stipulated date, the
creditor must file the suit against him within three years of the default. If the limitation
period of three years expires and he takes no action he will be barred from his remedy
and the other party is discharged of his liability to perform.
4. Discharge by Operation of Law: - A contract may discharge by the operation of law in the
following cases:
a. By Death: -Where performance of a contract is required to be made in person and

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the personal skill and qualification of the promisor are important, the death of the
promisor discharges the contract.
b. By insolvency: When a person is adjudged insolvent, he is discharged from all the
liabilities incurred before the adjudication.
c. By Merger: This is a condition by which, an inferior right contract merges into a
superior right contract. In this case, the inferior right contract stand discharged
automatically.
5. Discharge by Impossibility of Performance: -
sometimes, due to some reasons which are beyond the control of the parties, the performance
of a contract becomes impossible. In such cases, the contract is discharged on the ground of
impossibility of performance.
• The impossibility of performance of a contract may be (i)initial impossibility and (ii)
subsequent impossibility.
1. Initial impossibility or impossibility at the time of formation of contract: -
It means impossibility at the time of making the contract.
▪ For example, A agrees with B to discover a treasure by magic. The agreement is
void due to initial impossibility.
▪ A agreed to sell his horse to B. But unknown to both the parties, the horse had
already died at the time of making the contract. In this case, the contract is void on
the ground of initial impossibility.
2. Impossibility which arises subsequent to the formation of contract or Supervening
impossibility):
Impossibility arises where the performance of a contract is possible and practical when it
is made, but later becomes impossible or unlawful because of the occurrence of some
event over which the promisor has no control. Such a situation is called Subsequent
(supervening) impossibility.
Such impossibility may arise due to the reasons beyond the control of both the parties.
This kind of impossibility is known as Supervening impossibility and such contract
becomes void.
▪ For example, A agrees to sell his Motor Bike to B for a specific price. Later on they
came to know that motor bike already been stolen. Here the contract is void.
▪ A and B contracted to marry each other. Before the time fixed for the marriage. A
become mad. In this case, the contract becomes void due to subsequent
impossibility and thus discharged.
A contract is discharged due to supervening impossibility under the following situations:

- Destruction of subject matter: - Sometimes, the subject-matter of the contract is destroyed
after the formation of the contract. In such cases, the contract is discharged and the parties are
no more liable to perform their respective obligations. It may, however, be noted that the
destruction of subject-matter should be without any fault of the parties to the contract.
For example, X agrees to sell his Scooter to Y. Before the transfer, the Scooter is
destroyed by an accident; the contract is discharged by impossibility of

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performance.
A agreed to let a music hall to B for holding a music show on certain dates. But
before the first day of the show, the music hall was destroyed by fire without the
fault of either party.
b. Death or personal incapacity of the promisor: -A promise requiring personal skill
and ability may become physically incapable of performance by reasons of the death or
incapacity of the same person. Such impossibility discharges the promisor from
liability.
Example: A, a circus motor cyclist, contract with B the owner of Circus, to
perform particular action on his motor cycle. Before the performance , A died. In
this case the contract is discharged.
c. Change of Law: - Change of law, after the formation of a contract, if renders
performance of contract unlawful; such contract is discharged on the ground of
supervening impossibility.
d. Discontinuation of particular state of thing, which is essential for performance:
- Sometimes, the performance of contract remains possible, but due to the non-
occurrence of a contemplated event, the object or purpose of the contract is defeated.
In such cases, the contract become void, and thus discharged.
Example A hired a flat from B for June 26 to 27 for witnessing a coronation of
king Edward VII. The purpose for which A hired that flat was known to B, though
there was no reference to this that on the cancellation of coronation procession, the
contract become void and the real object of the contract has failed to materialize.
e. Declaration of war: When a war is declared after the formation of a contract, all
pending contracts with the residents of enemy country remains suspended.
Example: A is a dealer of Imported goods, entered in to an agreement to sell certain
imported goods to B. subsequently , a law was made which banned the sale of imported
goods. It was held that the contract is discharged as its performance had become
impossible due to change in law.
Exceptions to the Doctrine of supervening impossibility: In the following cases doctrine of

supervening impossibility is not applicable: -
1. Difficulty of performance: - Sometimes , the performance of the contract does not
become impossible, but becomes difficult only due to some subsequent event. In such
cases, the parties reman bound to performs the contrac.t in other words, the parties are
not discharged from their liability as the performance is difficult only and not
impossible.
2. Commercial Impossibilities: Sometimes, a party to the contract is faced with
commercial hardships. In such cases, the party is not discharged from the performance
of his obligations simply on the ground that it will be non-profitable for him to perform
the contract.
Example :A agreed to supply certain goods to B, Due to the outbreak of war, there was
sharp increase in the price of the goods. In this case. A is not discharged from his

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liability to supply the goods to B on the ground of increase in price.
3. Strikes, lock-outs, riots and civil disturbances:- A contract is not discharged

automatically on the ground of supervening impossibility due to strike, or a lockout by
the owners, or a civil disturbances coming in the way of performance of the contract.
Example: A agreed to supply certain goods to B, which were to be procured from Algeria.
Due to riots and civil disturbances in Algeria, the goods could not be procured. It was held
that there was no excuse for the non-performance of the contract.
4. Impossibility due to failure of third party: - Failure of third party or his inability
will not be considered sufficient ground for discharging a contract.
Example A agreed to supply certain goods to B which were to be imported by C. But C
failed to import the goods. In this case, the contract between A and B is not discharged.
And 4 liable to pay damages to B for the non-performance of the contract
5. Partial impossibility: When a contract is entered into for several objectives, failure
of one of the objects does not terminate the contract.
Example :A agreed to give his boat on hire to B for the purpose of (a) viewing a naval
review on the occasion of the coronation of King Edward VII, and (b) sailing round the
fleet. Due to King's illness, the coronation was cancelled, but the fleet was assembled. It
was held that the contract is not discharged as the boat could have been used to sail round
the fleet.
6. Discharge by Breach of Contract: - A contract can be discharged by not performing it.

Breach of contract means refusal of performance on the part of the parties.

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1.6 BREACH OF CONTRACT AND REMEDIES FOR

BREACH
• WHAT IS BREACH OF A CONTRACT?

A breach of a contract occurs if any party refuses or fails to perform his part of the contract or by
his act makes it impossible to perform his obligation under the contract, it is called breach of
contract
In the case of a breach of contract, the party who does not, or refuses to perform his obligations
is called the defaulting party whereas the other party is the aggrieved party.
In case of breach, the aggrieved party is relieved from performing his obligation
and is given a legal right to proceed against the defaulting party.
• TYPES OF BREACH
1. ANTICIPATORY BREACH
When the party declares his intention of not performing the contract before the performance is
due. This may be where a party:
(a) Refuses to perform i.e. expressly says that he will not perform
E.g. If a farmer agrees to sell to X, his whole crop of wheat i.e. 10 tons @ Rs. 8,000/ton, to be
delivered on 20 October. On 1 October, the farmer tells X that he will not deliver the wheat. The
farmer has committed anticipatory breach.

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(b) Disables himself from performing
E.g. If a farmer agrees to sell to X, his whole crop of wheat i.e. 10 tons @ Rs. 8,000/ton, to be
delivered on 20 October. On 1 October, he sells the 10 tons of wheat to Y. The farmer has
committed anticipatory breach.
Consequences of Anticipatory Breach
The aggrieved party has a right to
(a) rescind the contract and claim damages instantly; or,
(b) treat the contract as operative till the due date of performance and claim damages after the
due date.
2. ACTUAL BREACH
If any party refuses or fails to perform his part of the contract on the due date of performance.
E.g. A Bar Owner hires a Singer to perform at his bar twice every week for Rs. 5,000/night.
On the 6th night, the Singer does not show up. The Bar Owner may (a) rescind the contract and
claim compensation for the loss occasioned to him by the Singer’s failure to perform on the
6th night or,
(b) permit the Singer to perform on the 7th night. In situation (b) the Bar Owner is not entitled
to claim compensation UNLESS, while granting permission to perform on the 7th night, he
has intimated the Singer of his intention to do so.
Remedies Available to Aggrieved Party
WHAT IS A REMEDY?
The course of action available to the aggrieved party for the enforcement of a
right under a contract. The remedies available for breach of a contract are as under:
1) Cancellation /Exoneration / Rescission

2) Claim for damages
3) Claim for ‘Quantum meruit'
4) Claim for injunction
5) Claim for Restitution
6) Claim for specific performance
1) Rescission/ Cancellation /Exoneration
➢ Rescission is the right to not perform an obligation. In case of a breach of contract,
the Aggrieved Party may put an end to the contract i.e. the Aggrieved Party is discharged
from all obligations under the contract and is entitled to compensation for the damage
occasioned to him by the non-performance of the contract. When a contract is broken by
one party, the other party may sue to treat the contract as rescinded and refuse further
performance

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E.g. in the Farmer Example, if X decides to rescind the contract, X is discharged from his
obligation to pay the price of the wheat. Additionally, X is entitled to claim compensation for the
damage occasioned to him on account of the Farmer failing to deliver the wheat on 20 October.
For example, Mohan makes a contract to sell certain goods to Sohan for Rs.10,000, and Sohan promises
to make the payment on delivery If Mohan refuses to deliver the goods at the promised time, Sohan can
assure the contract to terminate. In this case, he is freed from his commitment to pay Rs.10,000.
2. CLAIM FOR DAMAGES

Damages are monetary compensation that is allowed for loss suffered by the Aggrieved Party.
The object of awarding damages is to make food the financial loss that has been suffered instead
of punishing the Defaulting Party.
The fundamental principal underlying damages is not punishment but compensation.
For example, A promises to deliver 100 cycle tyres at Rs. 50 each to B on 1 May, 2020, but
does not perform his promise on that date. In such circumstances if the price of a cycle tyre on
1 May is Rs. 55 per tyre, then B is entitled to claim damages at Rs. 5 per tyre from A, and can
sue for such damages.
Kinds/Types of Damages
a. Ordinary/General damages:
Ordinary Damages: Ordinary damages are those which naturally arise in the usual course of
things from such breach. The measure of ordinary damages is the difference between the
contract price and the market price on the date of the breach. If the seller retains the goods after
the breach, he cannot recover from the buyer and further loss if the market falls. nor is he liable
to have the damages reduced if the market rises.
For example
A contracts to deliver 100 bags of rice at Rs. 100 per bag on a future date. On the due dates he
refuses to deliver. The market price on that day is Rs. 110 per bag. The measure of damages
is the difference between the market price on the date of the breach and the contracted price
i.e.,
Rs. 110-100 = Rs. 10.
b. Special damages: - These damages are those which arise from the breach of contract under
special circumstances. If there is a breach of contract under special circumstances, special
damages can be claimed. Special damages can be recovered only if it stipulated in the contract.
E.g. A builder, X, is to build a house for Y by 1 January. Y has informed X that he intends to
give the house for rent to Z on 2 January. X builds the house so badly that the house falls down
before the 2 January and has to rebuild his entire house. As a consequence of this, Y fails to give
the house for rent to Z, and thereby loses the rent that he was supposed to receive from Z. Y is

19
also made to pay compensation to Z for not fulfilling his obligation under the contract between Y
and Z. In this case, X must make compensation to Y for the following:
o the cost of rebuilding the house;
o the rent lost; and,
o the compensation paid to Z.
c. Exemplary damages :- if the court feels that ordinary damages are not enough compensation for
the loss of reputation or emotional damage suffered by the aggrieved party, the court may impose
exemplary damages on the defaulter.
d. Nominal damages: Nominal damages are Damages that are awarded where there is a
technical violation of a legal right but no loss is suffered by the Aggrieved Party. Such damages
are very small and may or may not be awarded by the court.
e. Liquidated and unliquidated damages
When the damages have been agreed and fixed by the contracting parties, they are
called liquidated damages.
When the damages are not decided while entering into a contract but are
determined by the court after the breach has occurred, they are known as
unliquidated damages.
3. Claim for ‘Quantum meruit'

Quantum Meruit means as much as is earned. Where the court grants a right to quantum merit,
it means a right to claim compensation for work already done.
When a person has begun the work and before he could complete it, the other party
terminate the contract or does something, which makes it impossible for other party to
complete the contract, he can claim for the work under the contract.
For example, A promises to construct a house for B for 50,000. After A has started construction,
but before its completion. B rescind the contract and stops A from work. In such situation. A
can sue for an adequate compensation for the work that he has already done and can also sue
for damages.
For example, X, a writer, was engaged by M who is the editor of a magazine to write a series
of twelve articles to be published in the magazine. After X had delivered six articles, the
publication of the magazine was discontinued. X is entitled to receive payment for the six
articles already written, You will study more about quantum meruit later in this unit.
Essentials for the law of quantum meruit to be operative
• It is necessary for the contract to be divisible in the sense that it is possible to estimate the
value of the part that has been executed.
• It is also essential that the contract is not abrogated by the party making the demand for
compensation
For example, A contracts to write a book for publisher. After writing two chapters, he refuses to
complete the book. In this case, cannot claim to be paid for the two chapters he has written
4. Suit for Specific Performance:
In certain cases of breach Of contract, damages may not be considered as an adequate remedy.

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The aggrieved party may not be interested in monetary compensation. The court may, in such
cases, direct the defaulting party to carry out the promise according to the terms of the contract.
This is called 'Specific Performance' of the contract.
For example, A agreed to sell an old painting to B for Rs_ Subsequently, A refused to sell the
painting. Here, B may file a suit against A for the specific performance of the contract.
Specific performance is not granted under the following situations:

a. When monetary compensation is an adequate relief.
b. When the contract is of a personal nature, e.g., a contract to marry, a contract to paint a picture, etc.
c. When the contract is inequitable to either party.
d. Where one of the parties is a minor
5. Suit for Injunction:
Such a suit is a demand for the court to prohibit the Defaulting Party from doing a particular act.
It is also called a stay order.
➢ Injunction means an order of the court which prohibits a person to do Particular act.
➢ Where a party to a contract does something which the promised not to do, the court may
issue an order prohibiting him from doing so.
• For the example in the case of Warner Bros. vs. Nelson, a film actress agreed to act exclusively for
Warner Bros for a year, and for no other producer. During the year, she contracted to act for another
producer. It was held that she could be restrained by injunction from doing so.
E.g. A bank, X may bring a suit for injunction against Y, a bank defaulter, prohibiting Y
from selling of mortgaged property.
Questions Bank
1. Define the term of Contract. What are the essentials of Valid Contract?
2. “An agreement enforceable by law is a contract”- Explain the statement
illustrating the essential of valid contract.
3. “ All contract are agreement but all agreement are not contracts”- Explain
4. What do you mean by discharge of contract? Discuss the various modes by
which a contract may be discharged.
5. Discuss the doctrine of frustration with suitable examples.
6. What remedies are available to an aggrieved party for the breach of contract?

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TYBBA-SEM-V/LAB/2021-22/Unit -1 INDIAN CONTRACT ACT 1872

PROF. V.B.SHAH INSITUTE OF MANAGEMENT,

Prof. Soyeb Jindani & Prof. Nilesh Patel

According to section 2 (h)

Prof. Soyeb Jindani & Prof. Nilesh Patel

X Seller Rs. 5,000 Deliver 10 kg Rice

X and Y entered into contract where X promise to deliver 10 kg of Rice to Y, in exchange Y

Contract = an Agreement + enforceability by law.

The contract consists of two elements:

(ii) Legal Obligation

Prof. Soyeb Jindani & Prof. Nilesh Patel

Prof. Soyeb Jindani & Prof. Nilesh Patel

❖ DIFFERENCE BETWEEN AGREEMENT AND CONTRACT

Difference Points Agreement Contract

4. Object An agreement may not create a A contract necessarily creates a

5. Comparison Every agreement may not be a All contracts are agreements.

DISTINCTION BETWEEN VOID AND VOIDABLE

Prof. Soyeb Jindani & Prof. Nilesh Patel

1.3 ESSENTIAL ELEMENTS OF A VALID CONTRACT (U/s 10):

Prof. Soyeb Jindani & Prof. Nilesh Patel

enforcing the agreement.

3) Free Consent of parties:

4) Capacity of Parties: The parties to an agreement must be competent to contract.

Prof. Soyeb Jindani & Prof. Nilesh Patel

9) Possibilities of performance: The terms of the agreement must also be capable of

10) Legal Formalities:

Prof. Soyeb Jindani & Prof. Nilesh Patel

1.4 KINDS OR CLASSIFICATION OF CONTRACTS

A. On the basis of Enforceability/Validity

Prof. Soyeb Jindani & Prof. Nilesh Patel

B. On the basis of Formation

3.Constructive or Quasi Contract

4.E-Com Contracts / Contracts over Internet

Prof. Soyeb Jindani & Prof. Nilesh Patel

C. Classification of Contract on the basis of Performance

1.5 DISCHARGE OF VALID CONTRACT

Prof. Soyeb Jindani & Prof. Nilesh Patel

Prof. Soyeb Jindani & Prof. Nilesh Patel

• Alteration can be regarding time, place, quantity or price, etc.

Prof. Soyeb Jindani & Prof. Nilesh Patel

A contract is discharged due to supervening impossibility under the following situations:

Prof. Soyeb Jindani & Prof. Nilesh Patel

Exceptions to the Doctrine of supervening impossibility: In the following cases doctrine of

Prof. Soyeb Jindani & Prof. Nilesh Patel

liability to supply the goods to B on the ground of increase in price.

3. Strikes, lock-outs, riots and civil disturbances:- A contract is not discharged

6. Discharge by Breach of Contract: - A contract can be discharged by not performing it.

Prof. Soyeb Jindani & Prof. Nilesh Patel

1.6 BREACH OF CONTRACT AND REMEDIES FOR

• WHAT IS BREACH OF A CONTRACT?

Prof. Soyeb Jindani & Prof. Nilesh Patel

(b) Disables himself from performing

Consequences of Anticipatory Breach

The aggrieved party has a right to

(a) rescind the contract and claim damages instantly; or,

1) Cancellation /Exoneration / Rescission

Prof. Soyeb Jindani & Prof. Nilesh Patel

2. CLAIM FOR DAMAGES

Prof. Soyeb Jindani & Prof. Nilesh Patel

3. Claim for ‘Quantum meruit'

Prof. Soyeb Jindani & Prof. Nilesh Patel

Specific performance is not granted under the following situations:

Prof. Soyeb Jindani & Prof. Nilesh Patel