BUSINESS LAW Module 1:- LAW OF CONTRACT

DEFINITION OF CONTRACT: According to Halsbury “A contract is an agreement between two or more persons which is intended to be enforceable at law and is constituted by the acceptance of one party for an offer made to him by the other party to do or to abstain from doing some act” “A contract means an agreement which is enforceable by law” – Section 2 (h) Agreement and its enforceability, If we analyse the definition of contract we find that a contract essentially consist of two elements, which is (1) agreement and (2) Its enforceability by law. An agreement is defined as “every promise and every set of promises, forming consideration for each other” [Sec. 2(e)] A promise is defined thus:”When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise” [Sec. 2(b)] All contracts are agreements but all agreements are not contracts. A Contract is an agreement between two or more persons which is intended to be enforceable by law and is constituted by the acceptance of one party of an offer made to him by the other party to do or to abstain from doing some act. Agreement is defined as every promise or every set of promises forming the consideration for each other. Example: Balfour vs. Balfour The defendant was a civil servant stationed in Ceylon. He and his wife were enjoying leave in England. When the defendant was due to return to celyon, his wife could not accompany him because of her health. The defendant agreed to send her 30 pounds a month as maintenance expenses during the time they were thus forced to live apart. She sued for breach of this agreement. Her action was dismissed on the ground that no legal relations and been contemplated and therefore there was no contract. ESSENTIAL ELEMENTS OF A VALID CONTRACT According to sec. 10, all agreements are contract if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful objet and are not

expressly declared to be void. In order to become a contract, an agreement must have the following essential elements: 1. Offer and acceptance: There must be two parties to an agreement that is, one party making the offer and other party accepting it. The terms of the offer must be definite and the acceptance of the offer must be absolute and unconditional. The acceptance must also be according to the mode prescribed and must be communicated to the offeror. 2. Intention to create legal relationship: When the two parties enter into an agreement, their intention must be to create legal relationship between them. If there is no such intention on the part of the parties, there is no contract between them. Agreements of a social or domestic nature do not contemplate legal relationship; as such they are not contracts. Example: - In this case the defendant (husband), who was employed on a government job in Ceylon, went to England with his wife on leave. For health reasons the wife was unable to accompany the husband again to Ceylon. The husband promised to pay £30 per month to his wife as maintenance for the period, she had to live apart. The husband having failed to pay this amount was sued by his wife for the same. It was held that in this case, there being no intention to create legal relationship so the husband was not liable. [Balfour v. Balfour (1919)] 3. Lawful consideration: An agreement to be enforceable by law must be supported by consideration. „Consideration‟ means the price for which the promise of another is bought. “Quid – pro – quo” means something in return. Any contract without consideration cannot be enforceable by law. “Ex nudo pacto non oritor action” – from a bare agreement no action arises. 4. Capacity of parties: The parties to the agreement must be capable of entering into a valid contract. Every person is competent to contract if he (a) is of the age of majority, (b) is of sound mind, and (c) is not disqualified from contracting by any law to which he is subject (Sec 11 and 12). Flaw in capacity to contract may arise from minority, lunacy, idiocy, drunkenness, etc., and status. If a party suffers any flaw in capacity, the agreement is not enforceable except in some special cases. 5. Free and genuine consent: It is essential to the creation of every contract that there must be free and genuine consent of the parties to the agreement. The consent of the parties is said to be free when they are of the same mind on all the material terms of contract. The parties are said to be of the same mind when they agree about the subject-matter of the contract in the same sense and at the same time (Sec 13). There is absence of free consent if the agreement is induced by coercion, undue influence, fraud, misrepresentation, etc (Sec 14).

9. Example: “A” agrees to sell his house to “B” at a promise of receiving Rs 40 lakh and by chance if there is an unexpected earthquake then the person can‟t claim that he or she did not get the house. Void Contract: An agreement which is legally enforceable when entered into but which has become void due to some supervening impossibility of performance.6. 2. Valid Contract: Is that which is enforceable by law and it satisfies all the essential requirements laid down under section 10 of the contract act. 6. however. If it is vague and it is not possible to ascertain its meaning. . It is. 2. Agreement not declared void: The agreement must not have been expressly declared void by law in force in the country (Sec 24 to 30 and 56) 8. In other words. There are some other formalities also which have to be complied with in order to make an agreement legally some enforceable. Void Contract. In some other case. or (c) opposed to public policy (Sec 23). As regards the legal effects. Unenforceable Contract. it would not be enforceable by law. Void Agreements. the agreement is void as it is impossible of performance. Lawful object: The object of the agreement must be lawful. 7. there is no difference between a contract in writing and a contract made by word of mouth. Legal formalities: A contract may be made by word spoken or written. the document in which the contract is incorporated is to be stamped. Valid Contract. it means that the object must not be (a) illegal (b) immoral. 4. 5. Illegal agreements. If an agreement suffers from any legal flaw. On the basis of validity or enforceability contract may be classified as follows 1. Example: A agrees with B to put life into B‟s wife. A Void contract is not necessarily be unlawful but is destitute of legal effects. Certainty and possibility of performance: The agreement must be certain and not vague or indefinite (Sec 29). Voidable Contracts. in the interest of the parties that the contract should be in writing. TYPES OF CONTRACT I. it cannot be enforced. 1. 3.

. no legal rights or obligations are created from void agreements.”B” agrees. Example: A bill of exchange or promissory note. Classification of contract on the basis of formation. then the law implies that „B‟ agrees to pay for the services of the coolie and there is an implied contract. Implied Contract: When both the offer and acceptance constituting an agreement enforceable by law are made otherwise than in words. II. 2. Every void agreement is not illegal unless its object or consideration is immoral and opposed to the public policy. Unenforceable contract: It is the contract which is otherwise valid but cannot be enforced because of some technical effect like absence of a written form or absence of a proper stamp. They are void-ab-intio . and „B‟ allows him to do so. Voidable contract: An agreement which is enforceable by law at the option of one or more of the parties but not at the option of the other or others is a voidable contract. This is the result of absence of free consent in the contract. though valid in itself. 2. 3. Example:”A” threatens to shoot “B” if he does not sell his new Bajaj Scooter to “A” for Rs 2000. there is a express contract. 1. i. Express contract. 6.e. from the beginning or from the inspection Example: An agreement with a minor. Illegal Agreement: A contract which is either prohibited by law or otherwise against the policy of law is an illegal agreement. Example: A coolie in uniform takes up the luggage of „B‟ to be carried out of the railway station without being asked by „B‟. Implied contract. Constructive or quasi contact. E-com contracts. Void Agreements: It is an agreement which is not enforceable by law by either of the parties is void i. being time barred under limitation act. Express contract: Where both the offer and acceptance constituting an agreement enforceable at law are made in words written or spoken. becomes unenforceable after 3 years from the date of bill or note falls due.3. 1. Example: „A‟ tells „B‟ on telephone that he offers to sell his car for Rs 20000 and „B‟ in reply informs „A‟ that he accepts the offer. The contract has been bought by coercion and is voidable at the option of “B. 4. 5.e. 4. It is „void-ab-intio‟.

E-com contract: It is the contacts over the internet. III. when a person signifies to another his willingness to do or to abstain from doing anything with a view of obtaining the assent of that other to such act or abstinence” [Sec 2(a)] . OFFER (OR) PROPOSAL Definition: “An offer is a proposal by one party to another to enter into legally binding agreement with him. Executory Contract: Is that were one or both the parties to the contract have to fulfil their obligations. Example: Obligation of finder of lost goods to return them to the true owner or liability of a person to whom money is paid under mistake to repay it back cannot be said to arise out of a contract even in its remotest sense . Executory contracts. 1. Example: A bookseller sells a book on cash payment it is an executed contract because both the parties have done what they were to do under the contract. Example: „A‟ agrees to coach „B‟ .a pre medical student. Unilateral. Classification of contract on the basis of performance. A person is said to have made a proposal. 2. from the first day of next month and „B‟ in consideration promises to pay „A‟ Rs 500 per month. Unilateral: It is a contract in which a promise on one side is exchanged for an act on another side. the contract is Executory because it is yet to be carried out. Bilateral: It is the contract in which a promise on one side is exchanged for a promise on another side. 1. In other words it is a completed contract. 1. 2. Bilateral 2.as there is neither offer or acceptance nor consent. Executory contract is of two types namely 1.3. Executed contracts. 4. Constructive or quasi contract: The cases grouped under this type of contract have little or no affinity with contract. 2. Executed contracts: Is that were the parties to the contract have already performed their duties and completed all their obligations.

An offer. unambiguous and certain: If the terms of an offer are vague or indefinite. Example: A company advertised in several newspapers that a reward of £100 would be given to any person who contracted influenza after using the smoke balls of the company according to its printed directions. Thus when a transport company runs a bus on a particular route.. therefore. Unless an offer is communicated to the offeree by the offeror or by his duly authorized agent. The person making the offer is known as the offeror. Terms of offer must be definite. “Will you purchase my car for 50. Offer must be communicated: An offer. or promisor and the person to whom it is made is called the offeree or proposee. must be communicated to the person to whom it is made. it is called a general offer.000?” A. spoken or written. 3. The offer is not definite. proposer. “I will sell you a car.” A owns three different cars. . An offer may also be implied from contract of the parties or the circumstances of the case. in this case. must be such as would result in a valid contract when it is accepted. It can be accepted only by the person to whom it is made. (1893)] ESSENTIALS OF A VALID OFFER 1. it is called a specific offer. Carlill used the smoke balls according to the directions of the company but contracted influenza. there is an implied offer by the transport company to carry passengers for certain fare. Carbolic Smoke Ball Co. 2. Offer must be capable of creating legal relationship: A social invitation. Example: A says to B. even if it is accepted. One Mrs. This is known as an implied offer. there is an express offer. When an offer is made to definite person. When the offeree accepts the offer. [Sec 2 (c)] Example A says to B.000?” or when A advertises in a newspaper offering Rs 50 to anyone who returns his dog. he is called the acceptor or promisee. This is known as an express offer. OFFER HOW Express Implied Specific WHOM General An offer may be made by express words. to be complete. When A say to B. is making an offer to B. Held. When an offer is made to the world at large. there can be no acceptance of it. does not create legal relations because it is not so intended. Example. she could recover the amount as by using the smoke balls she had accepted the offer [Carlill v. “Will you purchase my house at Meerut for 50. its acceptance cannot create any contractual relationship.

is not an offer but merely an invitation to . A declaration of intention and an announcement: A declaration by a person that he intends to do something gives no right of action to another. Example: S sent his servant. An invitation to offer is not an offer. II. with price marked on them.000 and if you do not reply. if B is in possession of A‟s horse at the time the offer is made and he continues to use the horse thereafter. Example: Where A writes to B. to trace his missing nephew. 7. Example: A father wrote to his would be son-in-law that his daughter would have a share of what he left. in ignorance of the offer.An acceptance of an offer. “I will sell you my horse for 5. Held. IV. An invitation to make an offer or do business: Display of goods by a shopkeeper in his window. Gauri Dutt. However. is no acceptance and does not confer any right on the acceptor. Offer may be conditional. B is under no obligation to speak. a) Specified time. One of the parties dies before acceptance. I shall assume you have accepted the offer” there is no contract if B does not reply. An advertisement for a concert or an auction sale does not amount to an offer to hold such concert or auction sale. He then announced that anybody who traced his nephew would be entitled to certain reward. III. he claimed it. 2. Such a declaration only means that an offer will be made or invited in future and not that an offer is made now. OFFER MAY BE DISTINGUISED FROM 1. Subsequently when he came to know of the reward. Held. Offer must be made with a view to obtaining the assent: The offer to do or not to do something must be made with a view to obtaining the assent of the other party addressed and not merely with a view to disclosing the intention of making an offer. it was merely a statement of intention. 5. 6. B‟s silence and his continued use of horse amount to acceptance on his part of terms of A‟s offer. the offer would be considered as accepted. It can also lapse by revocation. Offer should not contain a term the non-compliance of which may be assumed to amount to acceptance: thus a man cannot say that if acceptance is not communicated by a certain time. he was not entitled to the reward [Lalman v. If the offeree does not make a valid acceptance. V. An offer lapse when I. L. L traced the boy in ignorance of this announcement. If it is not accepted within. (1913)] 4. b) Reasonable time.

the offer are cross offers. Likewise. Example: (a) At an auction sale. it can be accepted by him alone.the public to make an offer to buy goods at the marked prices. in ignorance of each others offer. or circulars sent to potential customers do not constitute an offer. CROSS OFFER When two parties make identical offer to each other. Casual enquiry. This is an implied acceptance Who can accept? Acceptance of particular offer: When an offer is made to a particular person. 5. An offer when accepted becomes a promise [Sec 2(b)] ACCEPTANCE Express Implied Acceptance may be express or implied. the offer is addressed to the first person who by performing the required act with knowledge of the offer of reward. In such case. the court will not construe one offer as the offer and other as the acceptance as such there can be no concluded contract. creates an agreement. Acceptance of general offer: When an offer is made to world at large. The auctioneer accepts the offer by striking the hammer on the table. quotation catalogues. Newspaper advertisements are not offers: A recognized exception to this is general offer of reward to the public. 4. B cannot substitute himself for A without your consent. It is implied when it is to be gathered from the surrounding circumstances or the contract of the parties. ACCEPTANCE Definition: When the person to whom the proposal is made signifies his assent it is be accepted. there is no valid acceptance. Thus when A advertised in a newspaper that he would pay Rs 100 to anyone who finds and returns her lost dog. Carbolic Smoke Ball (1893)] . S is the highest bidder. any persons to whom the offer is made can accept. A prospector. If it is accepted by any other person. It is express when it is communicated by words. The rule of law is clear that if you propose to make a contract with A. spoken or written or by doing some required act. 3. advertisement in a newspaper for a sale of an article. [Carlill v.

reply by wire. Grant.ESSENTIAL OF VALID ACCEPTANCE 1. It cannot precede an offer: If the acceptance preceded an offer it is not an valid acceptance and does not result in a contract. It will be a valid acceptance unless A informs B that the acceptance is not according to the mode prescribed. but tells C nothing of his intention. Example. A makes an offer to B and say: “If you accept the offer. Held. If the parties are not ad idem on all matters concerning the offer and acceptance. it must be given within a reasonable time. There is no contract. there is no contract Example: A made an offer to B to purchase a house with possession from 25th July. he was unaware for the pervious allotment. He refused to take the shares. The offer was followed by an acceptance suggesting possession from 1st August. Example: A tells B that he intends to marry C. whether material or immaterial. is not sufficient. he is deemed to have accepted the acceptance [Sec 7(2)]. shares ever allotted to a person who had not applied for them. It must be absolute and unconditional: An acceptance in order to be binding must be absolute and unconditional [Sec 7(1)] in respect of all terms of the offer. 4. Example: In a Company. M was entitled to refuse as this offer had lapsed as the reasonable period during which it could be accepted had elapsed.” B sends the reply by post. major or minor. Must be given with a reasonable time: If any time limit is specified. . the acceptance must be communicated in some perceptible form. the acceptance must be given within that time. He received an letter of acceptance on November 23rd. Held. It must be communicated to the offeror: To conclude a contract between the parties. It must show an intention on the part of the acceptor to fulfil terms of the promise: If no such intention is present the acceptance is not valid. there was no concluded contract [Routledge v. when there is no external manifestation of the intention to do so. If no time limit is specified. 3. or some usual and reasonable mode (where no mode is prescribed) the offeror may intimate to the offer within a reasonable time that the acceptance is not according to the mode prescribed and may insist that the offer must be accepted in the prescribed mode only. Subsequently when he applied for shares. 5. A mere resolve or mental determination on the part of the offeree to accept. (1828)] 2. 6. If he does not inform the offeree. even if C is willing to marry A. It must be according to the mode prescribed or usual and reasonable mode: If the acceptance is not according to the mode prescribed. The allotment of shares pervious to the application is in valid. Example: On June 8th M offered to take shares in R Company.

000 is the consideration for A‟s promise to sell the house.7. It must be given by the party or parties to whom the offer is made.“consideration is the price for which the promise of the party is brought”. 8. c. II. Consideration must move at the desire of the promisor: The acts done or service rendered voluntarily. “I offer you my car for 50. It may have been already executed or is in the process of being done or may be still executory. Example 2: A promises his debtor B not to file a suit against him for one year on B‟s agreeing to pay him Rs 100 more. b. The definition has mainly four components: a.: If A sees B‟s house on fire and helps in extinguishing it. unless the offeree has by his previous conduct indicated that his silence means that he accepts. the promisee or any other person has done or abstained from doing. or promises to do or to abstain from doing. Example 1: A agrees to sell his factory to B for Rs 50. Example: A wrote to B. Definition: Section 2(d) of Indian Contract Act defines consideration as follows: “ When at the desire of the promisor.000. & A‟s promise to sell the factory is the consideration for B‟s promise to pay the sum of Rs 50. Here B‟s promise to pay the sum of Rs 50. or at the desire of third party. It must be something to which the law attaches a value. There is no contract. According to Pollock. . It cannot be implied from silence: the acceptance of an offer cannot be implied from the silence of the offeree or his failure to answer. 9. E. ESSENTIAL FOR A CONSIDERATION 1. I shall assume that you accept.” B did not reply at all. d. It is an essential element of a valid contract (sec 10).000. He cannot demand payment for his services because B never asked his help.g. CONSIDERATION I. will not amount to a valid consideration. something. The act or abstinence or promise which forms the consideration for the promise. must be done at the desire of the promisor. such act or abstinence or promise is called Consideration for the promise”. It must be given before the offer lapses or before offer is withdrawn. If I don‟t hear from you in seven days. The abstinence of A is the consideration for B‟s promise to pay. It must be done by the promisee or any other person. or does or abstains from doing.000.

5. c) Future consideration: When the consideration on both sides is to move at a future date. It is also called as „Executory consideration‟. made over certain property to her daughter R.g. upon B‟s promise to pay for it at a future date.g.000 after a week. present or a future act or abstinence. E. & in February B promises to pay A a sum of Rs 200 for his services.g. Stranger to Contract: . E. Consideration may move from the promisee or any other person: Consideration need not move from the promisee alone but may move from a third person. E. as has been done by A. by a deed of gift. at the desire of the promisor. and certain..: A teaches B‟s son at B‟s request in the month of January. E. Later she declined to fulfil her promise saying that no consideration had moved from her maternal uncle.g. Consideration must be real: t must have some value in the eye of law.: To make a dead man alive or to run at a speed of 100 kms per hour etc… 6. i. an old lady. It must be real & competent. This means even a stranger to the consideration can sue provided he is a party to the contact. upon B‟s promise to pay the agreed price at the time of delivery. It was held that “under section 2 (d) a stranger to consideration may maintain a suit.g. Hence the maternal uncle. Accordingly. a) Past consideration: When something is done or suffered before the date of the agreement. on the same day R.: A sells & delivers a book to B. with a direction that the daughter should pay an annuity to A‟s brother C.000 for Rs 2000 only & his consent is free. it must be possible. notwithstanding the inadequacy of the consideration.: Chinayya vs. It is also called as „Executed consideration‟. Ramayya In this case A.: A promises to sell & deliver 10 bags of wheat to B for Rs 6.e. E. legal. b) Present consideration: It moves simultaneously with the promise. though a stranger to consideration was entitled to maintain the suit. the agreement is valid contract. The consideration moving from A is present or executed consideration since A has done his act simultaneously with the promise of B. The service of A will be the past consideration. Consideration must be law full: Promise must be legal. Consideration need not be adequate: Law only insists on the presence of the consideration & not the adequacy. E. executed writing in favour of maternal uncle C to pay annuity. present or future: The definition of consideration clearly indicates that it may consist of a past.g.: A agrees to sell his motorcar worth Rs 20. 4. It leaves the people to make their own bargains.: A promise to B to sell drugs which in not a law full consideration. 3.2.g. Consideration may be past. E.

: If A receives some money from B to be paid over to C and he admits of this receipt to C. the beneficiary can enforce the contract. E. Made on account of natural love & affection. a person who has already voluntarily done something for the promisor. C can enforce the agreement i. 2. Promise to compensate for past voluntary services: A promise without consideration is also valid. to give to B Rs 1.g. No Consideration No Contract: 1. Between parties standing in near relation to each other. I. 2. These are the four requirements. B promises to give A Rs 100. C being no party to the contract between A & B.: A promises.g. IV. trust. It means a person who is not a party to the contract. Expressed in writing. E. E. Family settlement: Provisions are made in a partition or family arrangement maintenance or marriage expenses of female members to sue for such expenses. This is a contract. for no consideration. In case of agency: where a contract is entered into by an agent. This is void agreement. C cannot file a suit against B to enforce his promise.g. the principal can sue on it. E.. A mortgages his property to B in consideration of B‟s promise to A to pay A‟s debt to C.g. Such a person cannot bring a valid suit. Registered under the law. E. III. When the defendant constitutes himself. Exceptions: Written & registered agreement arising out of love & affection: An agreement without consideration is enforceable if: 1.: A transfers certain property to B to be held by B in trust for the benefit of C. Where an express or implied trust is created: In case of a trust.000. who shall be regarded as agent of C. It means “an agreement made without consideration is void ab-intio”. then C can recover this amount from A.g. 4. as agent of the third party. if it is a promise to compensate.1. or done something which the promisor was legally compellable to do.: A finds B‟s purse & gives it to him. A stranger can bring action in following cases: I. wholly or in part. II. . 3. Consideration is one of the essential elements of a valid contract.e.

000. or anyone whom he is legally bound to support. Bailee. QUASI CONTRACT Under certain circumstances. incapable of entering into a contract. would be enforceable. In social. Completed gift: A gift doesn‟t require consideration in order to be valid.g. E. Baylor relationship is Bailment.: property. Claim for necessaries supplied to a person incapable of contracting or on his account: If a person. a person may receive a benefit to which the law regards another person as better entitled. because.: Hiring of goods. The defendant was held not liable & suit was dismissed.II. Contribution to Charity: A promise to contribute to charity. but the debt is barred by limitation act. It should be written & registered. A consideration need not be always something in return. Bailment: Is a sort of relationship in which the personal property of one person temporarily goes into the possession of another. V.: A owes B Rs 1. though gratuitous. although there is no contract or agreement between the parties. is supplied by another with necessaries suited to his condition in life. even though there is no contract between the parties. E. KINDS OF QUASI CONTRACT 1. III. A promise to pay a time.g.barred debt: A time barred debt cannot be recovered & therefore a promise to repay such debt is without consideration. Such contracts are called quasi contracts.g. A signs a written promise to pay B Rs 500 on account of the debt. the .: Abdul Aziz Vs Masum Ali: The defendant promised to subscribe Rs 500 to a fund started for rebuilding a Mosque but no steps had been carried out the repairs. or for which the law considers he should pay to the other person. E. personal relationship charity cannot be enforceable by law.g. Loan of some article etc IV. they are put in the same position as if there were a contract between them. E.

B treats it as his own. in payment of which he is interested: A person who is interested in the payment of money which another is bound by law to pay.: A supplies B a lunatic. If it is of such a nature that if permitted it would defeat the provision of any law E. If the court regards it as immoral or opposed to public policy . If it involves or implies injury to the person or property of another VI.g. and such other person enjoys the benefit thereof. If he does not. is subject to the same responsibilities as a bailee. and who thereof pays it is entitled to be reimbursed by the other.g. C is bound to repay the amount to B. he will be guilty of wrongful conversion of the property. who finds goods to another and takes them into his custody. 5.. or anything delivered. under similar circumstances. Responsibility of finder of goods: A person. Legality of object and consideration In most of the cases object and consideration mean the same.: A tradesman leaves goods at B's house by mistake. by mistake or under coercion. E. take of his own goods of the same bulk.person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person. it is said to be fraudulent. when a mis-representation is made by a party with full knowledge that it is not true or without belief in its truthiness. But in some of the cases they may be different. Till the owner is found out. he is bound to pay A for them 4. or to restore. Obligation of person enjoying benefits of non gratuitous act: When a person lawfully does anything for another person or delivers anything to him. and B not knowing this fact pays Rs 100 over again to C. the latter is bound to make compensation to the former in respect of. the things so done or delivered. So. or recklessly (not caring whether it is true or false). making certain mis-statements deliberately. not intending to do so gratuitously. A alone pays the amount to C.g. Liability of person to whom money is paid. quality and value. A is entitled to be reimbursed from B's property 2. with necessaries suitable to his condition in life.e. E.: Providing loan for child marriage III. Consideration and object of an agreement is unlawful in the following cases. Reimbursement of person paying money due by another. I. must repay or return it to the person who paid it by mistake or under coercion E. the property in goods will vest in the finder and he can retain the goods as his own against the whole world.: A & B jointly owe Rs 100 to C. 3. If it is fraudulent IV. „Fraud‟ means „deceit‟ i. V. He is bound to take as much care of the goods as a man of ordinary prudence would.g. If it is forbidden by law II. or thing delivered by mistake or under coercion: A person to whom money has been paid.

place and manner of performance (Sections 46 to 50) Performance of a promise where time is specified. Performance of a promise where no time is specified Performance of promise on application by the promisee Performance of promise where no place is specified and no application is to be made by the promisee Performance of promise in the manner and time prescribed or sanctioned by promise DISCHARGE OF CONTRACT The discharge of contract means that the parties are no more liable under the contract. but this does not hold where personal skills are required. By Breach of Contract 1. By Impossibility of Performance 4. A's agent can fulfill the promise c) Legal representative: In case of death of the promisor. he cannot afterwards enforce it against the promisor Time. E. By Performance 2.: painting. By Lapse of Time 5.g. unless such performance is dispensed with or excused. the contract is said to have been discharged by performance.g. The parties to a contract must either perform or offer to perform their respective promises. Sec 37.PERFORMANCE OF CONTRACT: Performance of a contract take place when the parties to the contract fulfil their obligation arising under the contract within the time and in the manner prescribed. Modes of Discharge of Contract are as follows: 1. The two modes of performance are: . singing etc d) Third party: If the promisee accepts performance of the promise from a third person. By Agreement 3.: A promises B some money. By Operation of Law 6. Discharge by performance of contract: When parties to the contract fulfil their obligations arising out of the contract within the time and in the manner prescribed. Who can demand performance? a) Promisee b) Legal representative : In case of death of the promisee Who must perform? a) Promisor b) Promisor or agent: E.

it can be discharged by an agreement that is by further consent to another contract. Merger Novation: The term „Novation‟ means substitution of a new contract for the existing one. As a contract is created by an agreement that is by further consent is created by an agreement. The consent may either be a) Express Consent at the time of Formation of Contract b) Express Consent Subsequent to Formation of Contract-if the parties to a contract agree to substitute a new contract for it. The alteration is valid when it is made with the consent of all the parties.000. This is known as Actual Performance of the Contract. Novation II. by agreement between the parties to the effect that it shall no longer bind them. The following are the important methods for the discharge of a contract by a fresh contract: I. This is new contract and extinguishes old one. An alteration may either be material or immaterial. Before the actual date of performance A and B mutually agree that the contract will not be performed. in the same way. .000 in place of the debt of the debt of Rs 10. A enters into an agreement with B and gives B mortgage of his (A‟s) estate for Rs 5. Alteration IV. or to rescind or alter it the original contract need not be performed. Waiver VI. 2. Rescission III. A contract may be discharged. An offer to perform obligation is called „tender of performance or offer to perform or attempted performance‟.000. The new contract may be between the same parties or between different parties or between different parties. The original contract is discharged when the parties enter into a fresh contract in place of original contract. The contract is rescinded. he is said to have actually performed his obligation to the contract. Remission V. Alteration: Alteration means a change in one or more of the material terms of the contract. Rescission: Rescission means cancellation of the contract. before the date of performance.a) Actual Performance or Performance of the Promise-when a party to a contract does what he had undertaken to do under the contract. Discharge by agreement: A contract may be discharged by mutual agreement of the concerned parties. b) Tender of Performance or Offer of Performance or Attempted Performance-the party who is bound to perform a promise under a contract is ready and willing to perform his obligations. Example: A promises to supply certain goods to B on a certain day. Example: A owes B Rs 10.

Waiver-the term „waiver‟ may be defined as the abandonment (that is giving up) of the rights to the party who is entitled to claim performance of the contract. the performance of a contract is quite possible when it was made. which does not in fact. Change of law or Change of Government Policy. and it is discharged.The parties are excused from performing their obligations if the performance of the contract becomes impossible by delegated legislation of powers under an Act. Failure of Object due to Non. Example: A promised to paint a picture for B. It makes the contract void ab initio. which he was having on lease. Destruction of Subject Matter-when the subject matter of the contract. His right as a lessee will merge into his right as an owner. This is based on the principle that the law does not recognize what is impossible. the remission is the lesser fulfillment of promise made. Such a contract is „void ab initio‟. In other words. Merger: Merger has taken place when an inferior right accruing to a party. Death or Incapacity of the Promisor-sometimes. Discharge by impossibility of contract: A contract is discharged if its performance becomes impossible. This change amounts to alteration of the contract. Forbade him to do so. B has waived his right to claim the performance. Specific Grounds of Subsequent or Supervening Impossibility: I. some events happen which renders the performance impossible or unlawful. Remission: The term „remission‟ may be defined as the acceptance of lesser fulfillment of the terms of the promise. the contract is discharged and the parties are no more liable to perform their respective obligations. But subsequently.Occurrence of Completed Event-when certain things necessary for performance cease to exist. happen the contract is discharged. The impossibility of performance may be of two types: a) Initial Impossibility-it is impossibility. which exists at the time of formation of a contract. without the fault of the promisor or the promisee. as right of a lessee is inferior to the right of an owner.Example: A enters into a contract with B for a supply of a machine at his warehouse on 1st February. subsequent to its formation. under a contract merges into a superior right accruing to the same party either under the same or the other contract. Later both A and B agree to postpone the date of delivery to 1st March. And thus. Afterwards. b) Subsequent or Supervening Impossibility-sometimes. is destroyed. . example: acceptance of a less sum of money where more is due. In this case. the contract becomes void on the ground of impossibility. III. In such cases. If a contract depends on the occurrence of an event. A is no longer liable to perform the promise. 3. Example: A purchases a house. IV. II. the nature or terms requires personal performance by the promisor himself. the death or incapacity of the promisor puts an end to the contract.

Commercial impossibility does not lead to discharge of contract. Specific Ground not covered by Subsequent or Supervening Impossibility: a) Difficulty of Performance. Effects of Subsequent or Supervening Impossibility: a) Contract becomes Void-an agreement do an act impossible itself is void. Doctrine of frustration: When common object of a contract can no longer be carried out. 5.death of the promisor results in termination of the contract in cases involving personal skill or ability. If the contracts are not performed and the aggrieved party does not enforce his rights within the limitation period.performance 4.all such events do not discharge the contract unless specifically provided by the parties. in a significant manner.a contract is not discharged by reason of the fact that the performance is more difficult.V. Discharge by operation of law: a) Unauthorized Material Alteration-a material alteration made in a written document or contract by owner party without the consent of the others will make the whole contract void. then he is debarred from enforcing the contract. the performance of a contract depends upon the behavior of a third person. b) Benefits to be restored-when an agreement is void any person who has received any advantage under such agreement or contract is bound to restore it. Lock-outs and Civil Disturbances. Such contracts are either suspended or declared as void by the government. Example: An agreement was entered into for the sale of land subject to the condition that the seller would do some development work on land. 1940.commercial impossibility means that the situation has so changed that if the contract is performed. In such cases. d) Strikes. more expensive or more burdensome or less profitable than the parties anticipated. b) Commercial Impossibility. . the legal identity or character of the contract or the right and liabilities of the parties to the contract. Before the work could be completed the land was requisitioned by the government. the parties remain bound to perform their respective obligations.on the declaration of a war. the court may declare the contract to be an end. the performance of the pending contracts with the citizens of other country becomes impossible. b) Death of Promisor. Discharge by lapse of time: The contract must be performed within the period of time specified by the Limitation Act. c) Impossibility due to Conduct of Third Person-sometimes. the contract is not discharged if the performance becomes impossible due to the conduct of the third person. c) Compensation for Non. it will result in a loss to the promisor. A material alteration is one. In other words. 6. which changes. Declaration of War.

. SUIT FOR DAMAGES The damages means monetary compensation allowed to the injured party for the loss or injury suffered by him as a result of the breach of contract. b) Actual breach. SUIT FOR RESCISSON When a contract is broken by one party. The process of enforcing the rights is known as remedies for breach of contract. c) Actual Breach.it occurs when a party repudiates his obligation under the contract before the time for performance arrives. b) Special Damages-special damages are those resulting from a breach of contract under some special circumstances. e) Anticipatory Breach of Contract. When a special circumstance exists the non-performance of the promise entitles to the promisee to not only the ordinary damages but also special damages. a party fails to perform his obligations. is said to have committed a breach of contract. TYPES OF REMEDIES FOR BREACH OF CONTRACT 1.c) Insolvency-a contract is discharged by the insolvency of one of the parties to it. who fails to perform his obligations. at place. in the usual course. The party. Discharge by breach of contract: The „breach of contract‟ means the failure of a party to perform his obligations. d) Actual Breach during the performance of the Contract-it occurs when one party fails or refuses to perform the obligation under the contract during the performance of the contract. Kinds of Damages: a) Ordinary or General or Compensatory Damages-ordinary damages are those which are payable for the loss arising naturally and directly. from the breach of contract. 2. He may bring an action for the rescission of the contract. at the Time when the Performance is Due-actual breach of contract occurs at the time when the performance due. the party may treat the breach as discharge and refuse to perform his part of contract. when one party fails or refuses to perform his obligation under the contract. REMEDIES FOR BREACH OF CONTRACT Whenever there is breach of contract the injured or thee aggrieved party (that is party not in not in default) can enforce his rights in court of law. The types of breach are: a) Actual Breach of Contract-it occurs when on the due date of performance or during the performance. 7.

A person can recover compensation in proportion to the work done by him. 3. . And the court may direct the defaulting party to carry out his obligations according to the terms of contract. Where the damages are not the adequate remedy for breach of contract. which he promised not to do.c) Nominal Damages-these are the damages. which are awarded by way of compensation for the loss suffered and not by way of punishment. which are very small in amount. Nominal damages are awarded simply to recognize the right of the party to claim damages even though the party suffered no loss. SUIT FOR SPECIFIC PERFOREMANCE Specific performance means the actual carrying out of the contract as agreed. Breach of Contract to Marry-in this case. d) Exemplary or Punitive or Vindictive Damages-these are such damages. I. 4. Dishonour of a Cheque by a Banker when there are sufficient funds to the Credit of the Customer. SUIT FOR INJUNCTION Injunction is an order of a court restraining a person from doing a particular act. 5. It is an order of the court restraining a person from doing something. II. And the person claims reasonable. the party aggrieved may bring an action for specific performance of the contract. And the person claims reasonable remuneration for the service rendered by him. This doctrine is applied where there is no express promise to pay definite remuneration to a person. the amount of the damages will depend upon the extent of injury to the party‟s feelings. SUIT UPON QUANTUM MERUIT The term quantum meruit means as much as earned.

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