Business Law

• Meaning and Nature of Law

• As a social being Man comes in to contact with different
people.
• Landlord-Tenant, Buyer-Seller
• You deal with them and follow a code of conduct or set
of rules.
• This is necessary in a civilized society
 What is Law ?
• Different people give different meaning to law.
• Citizen, Lawyer, Legislator, Judge
• Law means those rules/principles which are binding on us and there is a sanction if we
do not obey law.
•  Law is those rules of conduct recognized by the state and enforced on the people by it.
•  Salmond, a jurist defines law as the body of principles, recognized and applied by the
state in the administration of justice.
•  It is a body of rules and social machinery for securing order in the society.
• The above definitions bring out the following characteristics of Law:
• It is a body of rules.
• It is made by the state.
• It is enforced.
• It regulates human conduct.
• It is imposed.
• Content of Law is not static but dynamic
 Meaning and Nature of Law……Contd

• What is Law ?
• Law means those rules and regulations which are binding on us and there is
a sanction if we do not obey law.
• Law is those rules of conduct recognized by the state and enforced on the
people.
Meaning and Nature of Law
Objects of Law
a) To maintain order
b) To establish socio-economic justices
c) Vehicle of social change
d) Harbinger of social justice.
e) To regulate human conduct
f) To regulate business relations.
g) Promote a welfare state.
 Meaning and Nature of Law

Need for knowledge of Law

Ignorantia juris non excusat
(ignorance of law is no excuse)
 No one is above Law
 All are equal before law
 Law is not static, it is dynamic
 Functions of Law

• Justice
• Continuity/Uniformity
• Impartiality
• Rule of Law, not rule of Men.
 Business Law

Law is like a tree which has several branches.

Civil Law, Criminal Law, Industrial Law,
Constitutional Law, Tax Law, Business Law/
Mercantile Law/ Commercial Law.
Business Law consists of those rules which are
connected with trade, industry and commerce.
It is that law which deals with mercantile
transactions, contractual relations and the mutual
rights and obligations arising out of mercantile
transactions between mercantile persons.
 Sources of Mercantile Law
1) English Mercantile Law.
a. Common law
b. Equity
c. Statute law
d. Lex mercatoria / Law Merchant
e. Roman Law
f. Case Law
2) Customs and usages
3) Judicial decisions / precedents
4) Legislation:
 Supreme and subordinate Legislation.
 Direct and Indirect Legislation..
 Law of Contract
• Objects of Law of Contract:
•  It is to ensure the performance of the parties
and compliance with mutual rights and
obligations of the parties who enter in to a
contract. 
 The Indian Contract Act- 1872

• The Indian Contract – 1872 deals with all laws relating to

contracts.
 Definition of a Contract

• “A Contract is an agreement enforceable by law”.

•  A Contract essentially consists of two elements:
– Agreement
– Enforceability by law
•   An agreement is an accepted proposal.
• Agreement = Offer + Acceptance
• An agreement has in it promises made by parties to the agreement.
 Definition of a Contract..contd

• A promise is defined as: “When a person to whom a

proposal is made signifies his assent there to, the
proposal is said to be accepted. A proposal when
accepted becomes a promise”.
•  The essence of an agreement is consensus ad idem or
identity of minds. In the same sense and at the same time.
•  An agreement to become a contract must give rise to legal
obligations and not social obligations.
•  All contracts are agreements but all agreements are not
contracts.
•  To conclude, Contract = Agreement + Enforceability at Law. 
 Definition of Contract.. Contd
A contract is an agreement made between two or more parties which
the law will enforce. According to Sec. 2 (h), a contract is an agreement
enforceable by law. An agreement comes into existence by the process
of offer by one party and its unqualified acceptance by the other party.
The parties who enter into an agreement must agree upon the subject-
matter in the same sense and at the same time, i.e., there must be
consensus ad idem.
An agreement may be a social agreement or a legal
agreement. A social agreement is that which does
not give rise to legal consequences. In case of its
breach the parties cannot go to the Law Court to
enforce a right. A legal agreement is that which
gives rise to legal consequences and remedies in
the Law Court in case of its breach.
ESSENTIALS OF A VALID CONTRACT
 All agreements are contracts if they are made by the free consent of parties competent to
contract for a lawful consideration, with a lawful object and are not expressly declared to be void.
 The essentials of a valid contract are as under:
1. There must be an agreement. This involves two parties, one party making the offer and the other
party accepting it.
2. The parties must intend to create legal relationship.
i. Case Law [Balfour v Balfour]
ii. Case Law [ Rose & Frank Co. v. Corruption Bros]
3. The parties must be capable of entering into an agreement as regards age and understanding.
4. The agreement must be supported by consideration, quid proquo which means something in return.
5. The consent of the parties must be free and genuine.
6. The object of the agreement must be lawful.
7. The terms of the agreement must be certain and capable of performance.
I. Case Law [ Montreal Gas Co. v Vasey]
8. The agreement must not have been expressly declared as void.
9. The parties who enter into an agreement must agree upon the subject matter in the same sense
and at the same time i.e. here must be consensus ad idem.
10. All the legal formalities such as : stamping, and registration of the document whenever required by
law will have to be complied with.
 CLASSIFICATION OF CONTRACT
Void agreement – an agreement not enforceable by law
[Sec.2(g)]

• CLASSIFICATION OF CONTRACTS:
• Contracts are classified based on:
– Validity
– Formation
– Performance
 CLASSIFICATION BASED ON VALIDITY:

 Valid Contract: A contract which is an agreement enforceable at law and

which fulfills all the essentials of a valid contract.
 Void Agreement: An agreement not enforceable by law [ Sec 2(g)]
 Void Contract: A contract which ceases to be enforceable by law.
 [ Sec 2(f)]
 Voidable Contract: A contract which is enforceable by law at the option of
one party thereto, but not an option of the other. [ Sec 2(4)]
 Illegal Agreement: An agreement which involves the transgression of
some rule of basic public policy and is criminal in nature or immoral. It is
not only void as between the immediate parties but it also taints the
collateral transactions with illegality.
 Unenforceable Contract: A contract which cannot be enforced in a court
of law because of some technical defect such as absence of writing or
where the remedy has been barred by lapse of time.
 CLASSIFICATION BASED ON FORMATION:

 Express Contract: A contract in which the terms are stated in

words by the parties.
 Implied Contract: A contract which is inferred from the
circumstances of the case or from the conduct of the parties.
 Quasi Contract – An obligation created by law, regardless of
agreement.
• CLASSIFICATION BASED ON PERFORMANCE:

 Executed Contract: A contract which is wholly performed by both

the parties.
 Executory Contract: A contract in which the promises of both the
parties have yet to be performed.
 Partly Executed and Executory : A contract in which one party
has performed his obligation, but the other party has yet to perform
his obligation
 Unilateral Contract: A contract in which only one party has yet to
perform his obligation.
 Bilateral Contract: A contract in which both the parties have yet to
perform their obligations.
CLASSIFICATION OF CONTRACT (Cont….d)
Quasi-contract – an obligation created by law,
regardless of agreement.
 OFFER & ACCEPTANCE

• An “Offer” is a proposal by one to another to enter in to a legally

binding agreement.
• When one signifies to another his willingness to do or to abstain
from doing anything, with a view to obtain the assent of the other,
such an act or abstinence is said to be a “Proposal”.
•  Person making the proposal is the “Proposer / Offerer /
Promisor”.
• Person to whom the proposal is made is called as “Offeree /
Proposee”.
• When the Offeree accepts the proposal, he is called as “Acceptor /
Promisee”.
Legal Rules as to Offer

1. It must be intended to create legal relations.

2. It must be certain.
3. It must be distinguished from
a) A declaration of intention, and
b) and invitation to make offer.
4. It must be communicated to the offeree.
5. It must be made with a view to obtaining the assent of the
offeree.
6. It must not contain a term the non-compliance of which would
amount to acceptance.
7. A statement of price is not an offer.
Lapse of Offer

An offer lapses or comes to an end -

1. By communication of notice of termination of offer to the
offeree.
2. By lapse of the specified or reasonable time.
3. By death or insanity of the offeror.
4. By a counter-offer. Counter-offer is an offer to the original
offer.
5. By not being accepted according to the prescribed or usual
mode.
6. By non-fulfillment of a condition precedent.
Communication of Offer, Acceptance and Revocation

The communication of a proposal (offer) is complete

when it comes to the knowledge of the person to whom it is made.
The communication of an acceptance is complete – as against the
purposer when it is put into a course of transmission to him, so as
to be out of the power of the acceptor; as against the acceptor,
when it comes to the knowledge of the proposer. The
communication of a revocation is complete – as against the person
who makes it, when it is put into a course of transmission to the
person to whom it is made so as to be out of the power of the
person who makes it; as against the person to whom it is made,
when it comes to his knowledge (Sec. 4).
Special terms of offer.
These must be brought to the notice of the other party before the
acceptance of the offer, otherwise the acceptor will not be bound
by such terms. Where the acceptor knows that there are some
special terms, and his attention is drawn to them, he is bound by
them if he accepts the offer.

Contract by Telephone or Telex

It has the same effect as an oral agreement entered into between
the parties when they are face to face.
 OFFER & ACCEPTANCE
ACCEPTANCE

Legal Rules as to Acceptance

1. It must be absolute and unqualified.
2. It must be communicated to the offeror.
3. It must be according to the prescribed or usual mode.
4. It must be given within the prescribed or reasonable time.
5. It must be given by the specific person to whom the offer is
made. If the offer is general, it may be accepted by any person.
6. It must show an intention to fulfil the promise.
7. It cannot precede an offer.
8. It must be given before the offer lapses.
9. Mental acceptance is no acceptance.
Effect of silence on acceptance
The acceptance of an offer cannot be implied from the silence of
the offeree unless the offeree has by his previous conduct
indicated that his silence means that he accepts.

Acceptance subject to contract

An acceptance subject to contract means that the parties do not
intend to be bound until a formal contract is prepared and signed
by them.

Agreement to agree in future

If the parties have not agreed upon the terms of their
agreement but have agreed to agree in future,
there is no contract.
 CONSIDERATION

Consideration means something in return. It is the price for which

the promise of the other is bought. It must result in a benefit to
the promisor and / or a detriment to the promisee or both. Sec. 2
(d) defines it as follows:
“When at the desire of the promisor, the promisee or any other
person has done or abstained from doing, or does or abstains
from doing something, such act or abstinence or promise is
called a consideration for the promise.”
Legal rules as to consideration

• It is essential to support every contract.

• It must move at the desire of the promisor.
• It may move from the promisee or any other person.
• It may be past, present or future.
• It need not be adequate.
• It must be real and not illusory.
• It must not be something which the promisor is already legally
or contractually bound to do.
• It must not be illegal, immoral or opposed to public policy.
Stranger to contract
The general rule is that a stranger to a contract cannot sue. But
he may sue where -

1. a trust or charge is created in some specific immovable

property in favour of him;
2. a provision is made in a marriage settlement, partition or
family arrangement for his benefit;
3. there is an acknowledgement of a liability by the promisor or
the promisor constitutes himself as agent;
4. he is the assignee of rights and benefits under
involving personal skill;
5. he enters into a contract through an agent; and
6. there are covenants running with the land.
An agreement made without consideration is void
[Sec. 25]
The following are the exceptions to this rule, i.e.,
no consideration is required in case of -

1. A written and registered agreement based on natural love and

affection between parties standing in a near relation to each
other [Sec. 25 (1)];
2. A promise to compensate, wholly or a part, a person who has
already voluntarily done something for the promisor
[Sec. 25(2)];
3. A promise by a debtor to pay a time-barred debt if it is made
in writing and is signed by the debtor or by
his agent [Sec. 25(3)];
4. An agency [Sec. 185];
5. A complete gift [Expl. 1 to Sec. 25]
 CAPACITY TO CONTRACT

Every person is competent to contract who is of the age of

majority according to the law to which he is subject, and who is of
sound mind, and is not disqualified from contracting by any law to
which he is subject (Sec. 11)

1.Minor
A minor is a person who has not completed eighteen years of
age. But where a guardian has been appointed to a minor under
the Guardians and Wards Act or where a minor
is under the guardianship of the Court of
Wards, he attains majority at the age of
twenty-one. The positions as regards his
agreements is as follows:

Cont……d
1) His agreement is altogether void and inoperative.
2) He can be a promisee or a beneficiary in a contract.
3) His estate is liable for the necessary goods supplied or necessary
services rendered to him or to anyone whom he is legally bound to
support or for money lent to him to buy necessaries.
4) He may enter into contracts of apprenticeship, service, education
and instruction provided these are beneficial to him.
5) He can be an agent.

Cont……d
6) He cannot be a partner. But he can be admitted to the benefits of
an already existing partnership with the consent of the other
partners.
7) If he has received any benefit under a void agreement, he cannot
be asked to compensate or pay for it.
8) The court never orders specific performance of his agreements.
9) He can always plead minority and is not estopped from doing so
even when he enters into an agreement by falsely misrepresenting
his age.
10) He cannot be adjudged insolvent.
2. Persons of unsound mind
Lunatics. A lunatic can enter into a contract
when he is of sound mind.
Idiots. An agreement of an idiot like that of a minor is
altogether void.
Drunken or Intoxicated persons. Their position is similar to
that of lunatics.
These persons, like a minor, are liable for necessaries
supplied to them or their minor dependants.

3. Other persons.
Alten enemies. During the war an Indian
citizen cannot enter into a contract with a
alien enemy. Contracts made before the
war are either suspended or dissolved.
Foreign sovereigns and accredited representatives
of a foreign state. They can enter into contracts and enforce
these contracts in our Courts. But they cannot be sued in our
Courts without the prior sanction of the Central Government.
Corporations. The contractual capacity of a statutory
corporation is limited by the Statute governing it. As regards a
company registered under the Companies Act, 1956, its
contractual capacity is regulated by its Memorandum of
Association and the Companies Act, 1956.
Insolvents. When a debtor is adjudged insolvent he
is deprived of his power to deal in his property divisible
among his creditors.
Convicts. A Convict when undergoing
imprisonment is incapable of entering into a contract.
 FREE CONSENT
All agreements are contracts if they are made by the free
consent of the parties. Two or more persons are said to
consent when they agree upon the same thing in the same
sense [Sec. 13.] Consent is said to be free when it is not
caused by
(i) Coercion, or
(ii) Undue influence, or
(iii) Fraud, or
(iv) Misrepresentation, or
(v) Mistake, subject to the provisions of Secs. 20, 21
and 22.
Effect of agreement without free consent.
When consent to an agreement is caused by coercion, fraud,
misrepresentation, or undue influence, the agreement is a
contract voidable at the option of the party whose consent was so
caused [Secs. 19 and 19-A]

COERCION
“Coercion” is the committing or threatening to commit any act
formidden by the Indian Penal Code, 1860 or the unlawful
deaining, or threatening to detain, any property, to
the prejudice of any person whatever, with the
intention of causing any person to enter into an
agreement (Sec. 15).
A threat to commit suicide amounts to coercion.
UNDUE INFLUENCE
A contract is said to be induced by “undue influence” where the
relations subsisting between the parties are such that one of the
parties is in a position to dominate the will of the other, and uses
that position to obtain an unfair advantage over the other. A
person is deemed to be in a position to dominate the will of
another where he –

Cont……d
(a) Holds real or apparent authority over the other, or
(b) Stands in a fiduciary relation to the other; or
(c) Makes a contract with a person whose mental capacity is
temporarily or permanently affected by reason of age,
illness or mental or bodily distress. Where a person who
is in a position to dominate the will of another, enters into
a contract with him, and the transaction appears to be
unconscionable, the burden of providing that such contract
was not induced by undue influence lies upon the person
in a position to dominate the will of the other (Sec. 16).
Relationships which raise presumption of undue
influence:

• Parent and Child.

• Trustee and Beneficiary.
• Religious Guru and Disciple.
• Guardian and Ward.
• Solicitor and Client
• Doctor and Patient.
• Fiance and Fiancee.
No presumptions of undue influence in the following cases:

1. Husband and Wife.

2. Landlord and Tenant.
3. Creditor and Debtor.
MISREPRESENTATION AND FRAUD
“Misrepresentation is a mis-statement of a material fact made
innocently with a honest belief as to its truth or non-disclosure of
a material fact, without any intent to deceive the other party.
“Fraud” exists when it is shown that a false representation has
been made.
• Knowingly, or
• Without belief in its truth, or
• recklessly, not caring whether it is true or false, and
• the maker intends the other party to act upon it.
It also exists when there is a concealment of a
material fact.
MISTAKE
Mistake is erroneous belief about something.
It may be a
(1)Mistake of Law, or
(2)Mistake of fact.
Mistake of Law, It may be a
a) Mistake of law of the country, or
b) Mistake of law of a foreign country.
The general rule as regards mistake of law of the country is
that ignorance of law is no excuse. Mistake of law of a
foreign country is regarded as a mistake of fact.
2. Mistake of Fact, It may be a -
(1) Bilateral mistake. Where both the parties to an agreement
are under a mistake as to a matter of fact essential to the
agreement, the agreement is void [Sec. 20].
Mistake of Fact (bilateral mistake) may relate to:
a) Subject-matter. Mistake of fact regarding subject-
matter may relate to
i. Existence of the subject-matter;
ii. Price of the subject-matter;
iii. Quantity of the subject-matter;
iv. Identity of the subject-matter.
v. Quality of the subject-matter, or
vi. Title to the subject-matter.

Cont……d
 b) Possibility of performance. Mistake of fact may also
relate to
i. Physical, or
ii. Legal, impossibility of performance.
In both these cases, the agreement is void.
2. Mistake of Fact (Cont….d)
(2) Unilateral mistake. Where only one of the parties
is under a mistake as to a matter of fact, the contract is not
voidable [Sec. 22]. There are however two exceptions to
this rule.
(i) Identity of the person contracted with. If A intends to
enter into a contract with B. C cannot give himself any
right in respect of the contract by accepting the offer.
In such a case the contract is void.
(ii) Nature of contract. Where a person is made to enter
into a contract through the inducement of another but
through no fault of his own, there is a
mistake as to the nature of the
contract, and the contract is void.
 LEGALITY OF OBJECT

An agreement is a contract if it is made for a lawful consideration

and with a lawful object. [Sec. 10].
Every agreement of which the object or consideration is unlawful is
void. The consideration or object of an agreement is unlawful if –
it is forbidden by law; or it is fraudulent; or involves or implies injury
to the person or property of another; or the Court regards it as
immoral, or opposed to public policy (Sec. 23).
Effects of illegality.
No action is allowed on an illegal agreement.
This rule is based on the following two maxims:
(1) No action arises from a base cause.
(2) Where there is equal guilt, the defendant is in a better
position.

The effect of illegality are summed up as follows:

(1) The collateral transactions to an illegal agreement also
become tainted with illegality.
(2) No action can be taken for the
a) Recovery of money paid or property
transferred under an illegal agreement, and
b) Breach of an illegal agreement.
AGREEMENTS OPPOSED TO PUBLIC POLICY
An Agreement is said to be opposed to public policy when it is
injurious to the welfare of the society or its tends to be harmful
to the public interest. The following agreements are, or have
been held to be, opposed to public policy:
1. Agreements of Trading with enemy.
2. Agreement to commit a crime.
3. Agreements interfering with administration of justice.
These include
a) Agreements for stifling prosecution, and
b) Agreements which interfere with the course of
justice.

Cont…..d
AGREEMENTS OPPOSED TO PUBLIC POLICY
4. Agreements in restraint of legal proceedings. These include
a) Agreements to oust the jurisdiction of Courts, and
b) Agreements to vary periods of limitation.
5. Agreements for the sale of public offices.
6. Agreements tending to create interest opposed to duty.
7. Agreements in restraint of parental rights.
8. Agreements restricting personal liberty.
9. Agreements in restraint of marriage.
10. Marriage brokerage agreements.

Cont…..d
AGREEMENTS OPPOSED TO PUBLIC POLICY

11. Agreements interfering with marital duties.

12. Agreements in fraud of creditors or revenue authorities.
13. Agreements in restraint of trade.
An agreement in restraint of trade is one which restraints a
person from freely exercising his trade, business or
profession. Every agreement, by which anyone is restrained
from exercising a lawful profession, trade or business of any
kind is, to that extent, void [Sec. 27]. Exceptions are made in
case of agreements for sale of goodwill and partners’
agreements provided the restraint is reasonable.
 VOID AGREEMENTS

A void agreement is one which is not enforceable by law

[Sec. 2(g)]
The following agreements have been expressly declared to be void:
1. Agreements made by incompetent persons [Sec. 11].
2. Agreements made under a mutual mistake of fact [Sec. 20].
3. Agreements the consideration or object of which is unlawful
[Sec.23].
4. Agreements the consideration or object of which unlawful in part
[Sec. 24].
5. Agreements made without consideration [Sec. 25].
6. Agreements in restraint of marriage [Sec. 26].
7. Agreements in restraint of trade [Sec. 27].
Cont…..d
8.Agreements in restraint of legal proceedings [Sec. 28].
9.Agreements the meaning of which is uncertain [Sec. 29].
10. Agreements by way of wager [Sec. 30].
11. Agreements contingent on impossible events [Sec. 36].
12. Agreements to do impossible acts [Sec. 56].

Wagering agreements.
A wagering agreement is an agreement to pay money or money’s
worth on the happening or non-happening of a specified uncertain
event. Wagering agreements are void in India. In the States of
Maharashtra and Gujarat, however, they have been
declared to be illegal. The collateral transactions to
such wagering agreements in the States of
Maharashtra and Gujarat also become illegal.
In the rest of India, collateral transactions are valid.
Uncertain agreements
Agreements the meaning of which is not certain, or capable of being
made certain, are void.

Restitution
It means return of the benefit received from the plaintiff under a void
contract. The principle of restitution is that the defendant who has
been unjustly enriched at the expense of the plaintiff is required to
make restitution to the plaintiff.
 CONTINGENT CONTRACTS

A contingent contract is a contract to do or not to do something, if

some event, collateral to such contract, does or does not happen.

Characteristics of contingent contract.

1. Its performance depends upon the happening or non-happening
in future of some event.
2. The event must be uncertain.
3. The uncertain future event must be collateral to the contract.
Rules regarding contingent contracts.
1. If a contingent contract is to be performed if an uncertain future
event happens, it cannot be enforced until the event has
happened. If it is to be performed if a particular event does not
happen, its performance can be enforced if the event becomes
impossible.
2. If a contingent contract depends for its performance on doing of
an act by the promisor, the contract becomes void where the
promisor makes the performance impossible.

Cont……d
Rules regarding contingent contracts.
3. If a contingent contract contemplates doing of a thing if a
specified event happens within a fixed time, it becomes void if
the event does not happen within that time.
4. If a contingent contract contemplates to do anything if an
impossible event happens, it is void.
 PERFORMANCE OF CONTRACT
The parties to a contract must either perform or offer to
perform their respective promises.

Attempted performance or tender.

Attempted performance or tender is an offer of performance by the
promisor in accordance with the terms of the contract. If the
promisee does not accept performance, the promisor is not
responsible for non-performance, nor does he thereby lose his
rights under the contract. Thus a tender is
equivalent to actual performance. The tender, in
order to have this effect, must be unconditional,
of the whole quantity contracted for, at the proper
time, place and in the manner specified; and, where
these are not specified, it must be made in a
reasonable manner.
Reciprocal promises.
Promises which form the consideration or part of the
consideration for each other are called
'reciprocal promises'.
Rules regarding performance of reciprocal promises.
1. When reciprocal promises have to be simultaneously
performed the promisor is not bound to perform, unless the
promisee is ready and willing to perform his promise.
2. The reciprocal promises must be performed in the order fixed
by the contract.
3. Where the nature of reciprocal promises is such that one
cannot be performed unless the other party
performs his promise in the first place.
Then if the latter fails to perform he cannot claim
performance from the other, but must make
compensation to the first party for his loss.
By whom must contract be performed.

1. By promisor himself - If that was the intention of the

parties. i.e. where personal consideration is the
foundation of the contract.
2. By agent - where personal consideration is not the foundation of
the contract.
3. By legal representatives - in case of death of the promisor.
4. By joint promisors - when two or more persons/have made a
joint promise, then unless a contrary intention appears from the
contract. all such persons must jointly fulfill the promise. If any
of them dies, his legal representative must, jointly
with the surviving promisors, fulfill the promise.
If all the promisors die, the legal representatives
of all of them must fulfill the promise jointly.
Who can demand performance?
It is only the promisee, and in case of his death,
his legal representatives. who can demand performance.
When a person has made a promise to several persons,
then, unless a contrary intention appears from the contract, the right
to claim performance rests with all of them. When one of the
promisees dies, it rests with his legal representatives jointly with the
surviving promisees. When all the promisees die, it rests with their
legal representatives jointly.

Time and place of performance.

Time and place of performance of a contract are matters to be
determined by agreement between the parties themselves.
Where no time for performance is specified,
the promisor must perform the promise within a
reasonable time. If no time and place is fixed for the
performance of the promise, the promisor must
apply to the promisee to fix the day and time for
performance.
Time as the essence of contract.
Time for the performance of a contract may be fixed in the contract
itself. In that case the contract must be performed within that time
when time is of the essence of the contract. The general rule is that
in commercial contracts time is of the essence of contract. In other
contracts stipulations as to time are, in the absence of an express
or implied evidence to the contrary, presumed not to be of the
essence of the contract.
Appropriation of payments. The debtor has, at the time of
payment, right of choice of appropriating the payment; in default of
the debtor, the creditor has the right to appropriate; in default of
either, the law will allow appropriation of debts in order of time.
Rule of Clayton’s Case. Where the parties have a current account
between them, appropriation impliedly takes place in the order in
which the receipts and payments take place and are entered in the
account. The first item on the debit side of the account is
discharged or reduced by the first item on the credit side.
Assignment of contract.
Assignment of a contract means transfer of contractual
rights and liabilities under the contract to a third party.
It may take place by –
1. Act of the parties. This is subject to the following rules:
(1) Contracts involving personal skill or ability or other personal
qualifications cannot be assigned.
(2) A promisor cannot assign his liabilities or obligations under
a contract.
(3) The rights and benefits under a contract may be assigned if
the obligation under the contract is not of a personal nature.
(4) An actionable claim can always be
assigned but the assignment to be complete
and effectual must be effected by an
instrument in writing. Notice of such
assignment must also be given to the debtor.
2. Operation of law. This takes place in case
of death or insolvency of a party to the contract.
 DISCHARGE OF CONTRACT

A contract is said to be discharged when the obligations created

by it come to an end. The various modes of discharge of a
contract are as follows:

1. Discharge by performance.
Discharge of a contract by performance takes place when the
parties to the contract fulfill their obligations arising under the
contract within the time and in the manner prescribed. The
performance may be
(i) actual performance, or
(ii)attempted performance
2. Discharge by agreement or consent.
A contract rests on the agreement of the parties. As it is
agreement which binds them, so by their agreement or consent
they may be discharged. The discharge by consent may be
express or implied. Discharge by implied consent takes place by–
(a) Novation, i.e., when a new contract is substituted for
an existing one, either between the same parties or
between one of the parties and a third party.
(b) Alteration, i.e., when one or more of the terms of the contract
is/are altered by the mutual consent of the parties to the contract.
(c) Rescission, i.e., when all or some of the terms of the contract
are cancelled.
(d) Remission, i.e., acceptance of a lesser fulfillment of the promise
made.
(e) Waiver which means intentional relinquishment or giving up of a
right by a party entitled thereto under a contract.
(f) Merger, i.e., when an inferior right accruing to a
party under a contract merges into a superior right
accruing to the same party under a new contract.
3. Discharge by impossibility.
Impossibility of performance may be-
Initial impossibility. An agreement to do an act
impossible in itself is void.
Supervening impossibility. Impossibility which arises
subsequent to the formation of a contract (which could be
performed at the time when the contract was entered into) is
called subsequent or supervening impossibility.
The cases covered by supervening impossibility include;
(a) Destruction of subject-matter of contract;
(b) Non-existence or non-occurrence of a particular state of
things:
(c) Death or incapacity for personal service;
(d) Change of law or stepping in of a person
with statutory authority;
(e) Outbreak of war.
The contract is discharged in these cases.
The following cases are not covered by supervening impossibility:
(a) Difficulty of performance;
(b) Commercial impossibility;
(c) Failure of a third person on whose work the promisor relied;
(d) Strikes, lock-outs and civil disturbances;
(e) Failure of one of the objects.
The contract is not discharged in these cases.
4. Discharge by lapse of time.
If a contract is not performed within the period of limitation and if
no action is taken by the promisee in a Law Court, the contract
is discharged.

5. Discharge by operation of law.

This includes discharge by
(a) death,
(b) merger,
(c) insolvency,
(d) unauthorised alteration of the terms of a
written agreement, and
(e) rights and liabilities becoming vested in the
same person.
6. Discharge by breach of contract.
If a party breaks his obligation which the contract
imposes, there takes place breach of contract.
Breach of contract may be
[1] Actual breach, or
[2] Anticipatory breach.

[1] Actual breach of contract may occur

(a) At the time when the performance is due, or
(b) During the performance of the contract.
[2] Anticipatory breach of contract occurs
when a party repudiates his liability or
obligation under the contract before
the time for performance arrives.
 REMEDIES FOR BREACH OF CONTRACT

In case of breach of a contract, the injured party has one

or more of the following remedies:
1. Rescission. When there is breach of a contract by a party, the
injured party may sue to treat the contract as rescinded. He is
also absolved of all the obligations under the contract.
2. Damages. Damages are monetary compensation awarded to
the injured party by Court for the loss or injury suffered by him.
The foundation of modern law of damages, both in India and
England, is to be found in the judgment in the case of Hadley v.
Baxendale. Sec. 73 of the Indian Contract Act which deals with
“compensation for loss or damage caused
by breach of contract” is based on the judgment
in the case of Hadley v. Baxendale. Damages
may be of four types:

Cont…..d
1) Ordinary damages. These are damages
which actually arise in the usual course of
things from the breach of a contract.
2) Special damages. Damages which may reasonably be
supposed to have been in the contemplation of both the
parties at the time when they made the contract as the
probable result of the breach of it, are known as special
damages and may be recovered.
3) Vindictive or exemplary damages. These damages are
allowed in case of the breach of a contract to marry or
dishonour of a cheque by a banker wrongfully.

4) Normal damages. Where the injured party

has not suffered any loss by reason of the
breach of a contract, the court may award
a very nominal sum as damages.
 Liquidated damages and penalty.
‘Liquidated damages’ represent a sum, fixed or
ascertained by the parties in the contract, which
is a fair and genuine pre-estimate of the probable loss that
might ensue as a result of the breach. A ‘penalty’ is a sum
named in the contract at the time of its formation, which is
disproportionate to the damage likely to accrue as a result of the
breach. The Courts in India allow only ‘reasonable
compensation’.
3. Quantum Meruit.
A right to sue on a quantum meruit (as much as earned) arises
where a contract, partly performed by one party,
has become discharged by the breach of the
contract by the other party. This right is founded
on an implied promise by the other party
arising from the acceptance of a benefit by that
party.
4. Specific performance.
In certain cases the Court may direct the party in breach of a
contract to actually carry out the promise, exactly according to
the terms of the contract. This is called specific performance
of the contract.

5. Injunction.
It is a mode of securing the specific performance of the
negative terms of a contract.
 QUASI CONTRACTS
In certain cases the law imposes an obligation and allows an action
to be brought on it as if it arose out of an agreement, though none
was present in fact. Such cases, strictly speaking, are not
contracts, but the law recognises them as “certain relations
resembling those created by contracts”. In English Law, such
relations are called quasi-contracts.

Quasi contracts rest on the ground of equity that a person shall not
be allowed to enrich himself unjustly at the expense of another.
Secs. 68 to 72 deal with the following quasi-contracts:
[1] Claim for necessaries supplied to a person
incapable of contracting or on his account. [Sec. 68].
[2] Reimbursement of a person paying money due by another in
payment of which he is interested [Sec. 69].
[3] Obligation of a person enjoying benefit of a non-gratuitous act
[Sec. 70].
[4] Responsibility of finder of goods [Sec. 71].
[5] Liability of person to whom money is paid or thing delivered by
mistake or under coercion [Sec. 72].