CONTRACT ACT CONTRACT ACT 18721872

BYBY

MRS. NEHA VERMA MRS. NEHA VERMA RAHATERAHATE

CONTENTSCONTENTS

•What is a Contract?What is a Contract?•Valid Contract and its Valid Contract and its

essential characteristicsessential characteristics•Classification for ContractClassification for Contract•Various forms of Quasi Various forms of Quasi

ContractsContracts

AGREEMENTAGREEMENT• The contract is formed only on the The contract is formed only on the

basis of agreement. It is a combined basis of agreement. It is a combined effect of offer and acceptance.effect of offer and acceptance.

AGREEMENT= OFFER+ AGREEMENT= OFFER+ ACCEPTANCEACCEPTANCE

According to section 2(e), Agreement According to section 2(e), Agreement is a promise or set of promises is a promise or set of promises forming consideration for each other.forming consideration for each other.

CONTRACTCONTRACT• According to sec.2(h), According to sec.2(h), CONTRACTCONTRACT

may be defined asmay be defined as

““An Agreement enforceable An Agreement enforceable by law ”.by law ”.

• These agreements creates Rights These agreements creates Rights and Obligations between the and Obligations between the Parties which can be claimed in Parties which can be claimed in the Court of Law.(Legal the Court of Law.(Legal Obligation)Obligation)

THREE MAJOR THREE MAJOR COMPONENTS OF A COMPONENTS OF A

CONTRACTCONTRACT1.1. AGREEMENTAGREEMENT

2.2. OBLIGATIONOBLIGATION

3.3. ENFORCEABILITYENFORCEABILITY

• Agreement + Legal Obligation Agreement + Legal Obligation Contract Contract

• Agreement + Social Obligation Agreement + Social Obligation Contract Contract

ESSENTIALS OF A VALID ESSENTIALS OF A VALID CONTRACTCONTRACT

• An Agreement has to fulfill the following An Agreement has to fulfill the following legal conditionslegal conditions to become a Contractto become a Contract – –

1)1)Two or more parties Two or more parties (Offer and (Offer and Acceptance)Acceptance)

2)2)Intension to create a Intension to create a Legal Relationship

3)3)Lawful ObjectLawful Object

4)4)Capacity of parties (Major, Sound mind)Capacity of parties (Major, Sound mind)

5)5)Free Consent (understanding of terms Free Consent (understanding of terms and conditions)and conditions)

ESSENTIALS OF A VALID ESSENTIALS OF A VALID CONTRACT CONTINUED..CONTRACT CONTINUED..

6) Writing and Registration and Duly 6) Writing and Registration and Duly stamped (not Oral Contract)stamped (not Oral Contract)

7) Certainty (proper terms and 7) Certainty (proper terms and conditions)conditions)

8) Possibility of the Performance (it 8) Possibility of the Performance (it should not be impossible)should not be impossible)

9) Must not have been disqualified by 9) Must not have been disqualified by any lawany law

CLASSIFICATION OF CLASSIFICATION OF CONTRACTSCONTRACTS

ON THE BASIS OF

CREATION CREATION (FORMATIO(FORMATION)N)

- EXPRESS

-IMPLIED

- QUASI

EXECUTION EXECUTION (PERFORMAN(PERFORMANCE)CE)

-EXECUTED

-EXECUTORY

-PARTLY

ENFOECEABILIENFOECEABILITY (VALIDITY)TY (VALIDITY)

-VALID

- VOID

- VOIDABLE

- ILLEGAL

ON THE BASIS OF ON THE BASIS OF FORMATIONFORMATION

1.1. EXPRESS CONTRACT-EXPRESS CONTRACT-

Express contract is one which is Express contract is one which is made by made by words spoken or writtenwords spoken or written at the time of formation .at the time of formation .

Example1Example1 X X sayssays to Y, will you buy a car for Rs. 100000? to Y, will you buy a car for Rs. 100000?

Y says to X, I am ready to buy you car for Rs. Y says to X, I am ready to buy you car for Rs. 100000. It is an express contract made 100000. It is an express contract made orally.orally.    

Example 2Example 2  

X X writeswrites a letter to Y, I offer to sell my car for a letter to Y, I offer to sell my car for Rs. 100000 to you. Y send a letter to Y, I am Rs. 100000 to you. Y send a letter to Y, I am ready to buy you car for Rs. 100000. It is an ready to buy you car for Rs. 100000. It is an express contract made in express contract made in writingwriting..

22. IMPLIED CONTRACT. IMPLIED CONTRACT

An implied contract is one which is An implied contract is one which is inferredinferred from the acts or conduct of the from the acts or conduct of the parties or from the circumstances of the parties or from the circumstances of the cases.cases.

Example :Example :

X, a coolie in uniform picks up the bag of Y to X, a coolie in uniform picks up the bag of Y to carry it from railway platform to the taxi carry it from railway platform to the taxi stand, without being told by Y to do so and Y stand, without being told by Y to do so and Y allows him. In this case there is an allows him. In this case there is an implied implied offer offer by the coolie and an by the coolie and an implied implied acceptanceacceptance by the passenger. Now, there is by the passenger. Now, there is an an implied contract between the coolie implied contract between the coolie and the passengerand the passenger and he is is bound to pay and he is is bound to pay for the services of the coolie.for the services of the coolie.

3. QUASI CONTRACTS3. QUASI CONTRACTS• These contacts are based on the These contacts are based on the

principles of principles of Justice and EquityJustice and Equity..• Quasi means Quasi means ‘ as if ’ or ‘ similar to ’‘ as if ’ or ‘ similar to ’• Also called as Also called as ‘ Implied Contracts’‘ Implied Contracts’• It is just It is just like a Contract like a Contract as it also creates as it also creates

legal obligations.legal obligations.• But the legal obligation created by Quasi But the legal obligation created by Quasi

Contract do Contract do NOTNOT rest on any Agreement, rest on any Agreement, but are but are IMPOSED BY LAW.IMPOSED BY LAW.

Example:Example: Where certain  books are delivered to a wrong Where certain  books are delivered to a wrong

address then they are under an obligation to address then they are under an obligation to either pay for them or return them.either pay for them or return them.

ON THE BASIS OF ON THE BASIS OF PERFORMANCEPERFORMANCE

1.1. EXECUTED CONTRACT-EXECUTED CONTRACT-

It is a contract where It is a contract where both the partiesboth the parties to the contract have to the contract have fulfilled their fulfilled their respective obligationsrespective obligations under the under the contract. contract.

Example: Example:

X offers to sell his car to Y for Rs. 1 lakh. X offers to sell his car to Y for Rs. 1 lakh.

Y accepts X’s offer. X delivers the car to Y Y accepts X’s offer. X delivers the car to Y and Y pays Rs. 1 lakh to X. It is an and Y pays Rs. 1 lakh to X. It is an executed contract.executed contract.

2. 2. EXECUTORY CONTRACT- EXECUTORY CONTRACT-

It is a contract where both the parties It is a contract where both the parties to the contract have to the contract have still to perform still to perform their respective obligations.their respective obligations.

Example: Example:

X offers to sell his car to y for Rs. 1 X offers to sell his car to y for Rs. 1 lakh. lakh.

Y accepts X’s offer. If the car has Y accepts X’s offer. If the car has not not yet been delivered by X and the yet been delivered by X and the price has not yet been paid by Yprice has not yet been paid by Y, it is , it is an Executory contractan Executory contract

3.3. PARTLY EXECUTED AND  PARTLY EXECUTED AND PARTLY EXECUTORY PARTLY EXECUTORY CONTRACT: CONTRACT: 

It is a contract where It is a contract where one of the one of the parties to the contract has fulfilled parties to the contract has fulfilled his obligation and the other party his obligation and the other party has still to perform his obligationhas still to perform his obligation. . Example:Example:

X offers to sell his car to y for Rs. 1 X offers to sell his car to y for Rs. 1 lakh on a lakh on a credit of 1 monthcredit of 1 month. Y accepts . Y accepts X offer. X sells the car to Y. Here the X offer. X sells the car to Y. Here the contract is contract is executed as to X and executed as to X and Executory as to Y.Executory as to Y.

ON THE BASIS OF ON THE BASIS OF VALIDITYVALIDITY

1.1. VALID CONTRACT-VALID CONTRACT- contract which contract which satisfies all the satisfies all the

conditions prescribed by law conditions prescribed by law is a valid is a valid contract.contract.

Eg. X offers to marry Y. Y accepts X offer. Eg. X offers to marry Y. Y accepts X offer. This is a valid contract.This is a valid contract.

2.2. VOID CONTRACT- [sec 2 (g)]VOID CONTRACT- [sec 2 (g)] A void contract is a contract which is A void contract is a contract which is

valid when entered into but which valid when entered into but which subsequently became void subsequently became void due to due to impossibility of performance, change of impossibility of performance, change of law or some other reason. law or some other reason.

Eg. X offers to marry Y, Y accepts X offer. Eg. X offers to marry Y, Y accepts X offer. Later on Y dies. This contract was valid at Later on Y dies. This contract was valid at the time of its formation but became void the time of its formation but became void at the death of Y.at the death of Y.

3.3. VOIDABLE CONTRACT: VOIDABLE CONTRACT:

• An arrangement which is enforceable by An arrangement which is enforceable by law at the option of one or more of the law at the option of one or more of the parties thereon but not at the option of parties thereon but not at the option of other or others, is a voidable contract.other or others, is a voidable contract.

• If the essential element of If the essential element of free consent free consent is missing is missing in a contract, the law in a contract, the law confers right on the aggrieved party confers right on the aggrieved party either to either to reject the contract or to reject the contract or to accept itaccept it. However, the contract . However, the contract continues to be good and enforceable continues to be good and enforceable unless it is repudiated by the aggrieved unless it is repudiated by the aggrieved party.party.

• Eg. X threatens to kill Y, if the does not Eg. X threatens to kill Y, if the does not sell his house for Rs. 1 lakh to X. Y sells sell his house for Rs. 1 lakh to X. Y sells his house to X and receives payment. his house to X and receives payment. Here, Y consent has been obtained Here, Y consent has been obtained by by coercion coercion and hence this contract is and hence this contract is voidable at the option of Yvoidable at the option of Y, the , the aggrieved party. If Y decides to avoid aggrieved party. If Y decides to avoid the contract he will have to return Rs. 1 the contract he will have to return Rs. 1 lakh which he had received from X. If Y lakh which he had received from X. If Y does not exercise his option to repudiate does not exercise his option to repudiate the contract the contract within a reasonable timewithin a reasonable time and in the meantime Z purchases that and in the meantime Z purchases that house from X for 1 lakh in good faith, Y house from X for 1 lakh in good faith, Y cannot repudiate the contract.cannot repudiate the contract.

4.4. ILLEGAL CONTRACT: ILLEGAL CONTRACT:

An illegal contract is unlawful. An illegal contract is unlawful.

Such an agreement cannot be enforced Such an agreement cannot be enforced by law.Thus, illegal agreements are by law.Thus, illegal agreements are always always

void -ab- initio (i.e. void from the very void -ab- initio (i.e. void from the very beginning)beginning)

Eg. X agrees to Y Rs.1 lakh Eg. X agrees to Y Rs.1 lakh to kill Zto kill Z. Y . Y kills Z and claims Rs. 1 lakh. Y cannot kills Z and claims Rs. 1 lakh. Y cannot recover the amount from X because the recover the amount from X because the agreement between X and Y is illegal agreement between X and Y is illegal and also its object is unlawful.and also its object is unlawful.

QUASI CONTRACTSQUASI CONTRACTS

• Quasi means Quasi means ‘ as if ’ or ‘ similar to ’‘ as if ’ or ‘ similar to ’• It is just like a Contract as it also It is just like a Contract as it also

creates legal obligations.creates legal obligations.• But the legal obligation created by But the legal obligation created by

Quasi Contract do NOT rest on any Quasi Contract do NOT rest on any Agreement, but are IMPOSED BY Agreement, but are IMPOSED BY LAW.LAW.- Inspite of not having contract between

parties , the rights and obligations are created by operation of law rather than offer and acceptance ie Agreement.

TYPES OF QUASI TYPES OF QUASI CONTRACTSCONTRACTSSec 68 to 72Sec 68 to 72

1.1. Claim for supply of necessaries to Claim for supply of necessaries to person incapable of contractingperson incapable of contracting

2.2. Reimbursement of money paid, in Reimbursement of money paid, in which he is interestedwhich he is interested

3.3. Obligation of person to pay for Obligation of person to pay for enjoying benefit of non-gratuitous actenjoying benefit of non-gratuitous act

4.4. Responsibility of finder of goodsResponsibility of finder of goods

5.5. Liability of a person to whom money is Liability of a person to whom money is paid or thing delivered by mistake or paid or thing delivered by mistake or under coercionunder coercion

1.1. Claim for supply of Claim for supply of Necessaries to person Necessaries to person

incapable of contractingincapable of contracting• If a person incapable of entering If a person incapable of entering

into a contract or any one who is into a contract or any one who is legally bound to support, is legally bound to support, is supplied by another person with supplied by another person with necessaries suited to his condition necessaries suited to his condition in life, the person who has in life, the person who has furnished such supplies is entitled furnished such supplies is entitled to be reimbursed from the to be reimbursed from the property of such incapable person.property of such incapable person.

• Illustrations:Illustrations:(a) A supplies B, a lunatic, with (a) A supplies B, a lunatic, with necessaries suitable to his necessaries suitable to his condition in life. A is entitled to condition in life. A is entitled to be reimbursed from B’s property. be reimbursed from B’s property.

(b) A supplies the wife and (b) A supplies the wife and children of B, a lunatic, with children of B, a lunatic, with necessaries suitable to their necessaries suitable to their condition in life. A is entitled to condition in life. A is entitled to be reimbursed from B’s property.be reimbursed from B’s property.

2.2. Reimbursement of Reimbursement of money paid, in which he money paid, in which he

is interestedis interested•A person who is interested in A person who is interested in

the payment of money which the payment of money which another is bound by law to another is bound by law to pay, and who therefore pays pay, and who therefore pays it, is entitled to be it, is entitled to be reimbursed by the other.reimbursed by the other.

• Illustrations:Illustrations:

The house in which A lives as The house in which A lives as a tenant is declared to be sold a tenant is declared to be sold by municipal corporation for by municipal corporation for non payment of tax by the non payment of tax by the owner of the house.owner of the house.

A makes the payment in order A makes the payment in order to protect his interest. to protect his interest.

A is conferred a legal right to A is conferred a legal right to recover such payment from recover such payment from the owner of the house.the owner of the house.

3.3. Obligation of person to Obligation of person to pay for enjoying benefit of pay for enjoying benefit of

non-gratuitous actnon-gratuitous act• Where a person lawfully does Where a person lawfully does

anything to another person, or anything to another person, or delivers anything to him delivers anything to him not not intending to do so gratuitouslyintending to do so gratuitously and and such other person enjoys the such other person enjoys the benefit there of, the latter is bound benefit there of, the latter is bound to make compensation to the to make compensation to the former in respect of or to restore former in respect of or to restore the thing so done or delivered.the thing so done or delivered.

• Illustrations:Illustrations:

A, a tradesman, leaves goods A, a tradesman, leaves goods at B’s house by mistake. B at B’s house by mistake. B treats the goods as his own. treats the goods as his own. He is bound to pay A for He is bound to pay A for them.them.

4.4. Responsibility of Responsibility of finder of goodsfinder of goods

•A person who finds goods A person who finds goods belonging to another and belonging to another and takes them into his custody, takes them into his custody, is subject to the same is subject to the same responsibility as a bailee.responsibility as a bailee.

5.5. Liability of a person to Liability of a person to whom money is paid or thing whom money is paid or thing delivered by mistake or under delivered by mistake or under

coercioncoercion• A person to whom money has been paid, A person to whom money has been paid,

or anything delivered or anything delivered by mistake or by mistake or under coercion, must repay or return under coercion, must repay or return itit..

• Illustration:Illustration:A and B jointly owe Rs. 100 to C. A alone A and B jointly owe Rs. 100 to C. A alone pays the amount to C, and B not knowing pays the amount to C, and B not knowing this fact, pays Rs.100 over again to C. C this fact, pays Rs.100 over again to C. C is bound to repay the amount to Bis bound to repay the amount to B

Discharge Discharge of contractof contract

Discharge of contractDischarge of contract

• Discharge of contract means Discharge of contract means terminationtermination of the contractual of the contractual relationship between the parties. relationship between the parties. A contract is said to be A contract is said to be discharged when it discharged when it ceases to ceases to operateoperate, i.e., when the rights and , i.e., when the rights and obligations created by it obligations created by it comes comes to an endto an end..

A CONTRACT MAY BE A CONTRACT MAY BE DISCHARGEDDISCHARGED

1. By performance1. By performance

2. By mutual agreement or 2. By mutual agreement or consentconsent

3. By impossibility of 3. By impossibility of performanceperformance

4. By lapse of time4. By lapse of time

5. By operation of law5. By operation of law

6. By Breach of contract6. By Breach of contract

Discharge by Discharge by performanceperformance• Performance means the doing of that, Performance means the doing of that,

which is required by the contract. which is required by the contract. • Discharge by performance takes place Discharge by performance takes place

when the when the parties of the contract perform parties of the contract perform within the time and in the manner within the time and in the manner prescribed.prescribed.

• In such a case, In such a case, the parties are discharged the parties are discharged and the contract comes to an endand the contract comes to an end. But if . But if only one party performs the promise, he only one party performs the promise, he alone is discharged.alone is discharged.

• Such a party gets a right of action Such a party gets a right of action against the other party who is guilty of against the other party who is guilty of breach.breach.

• Performance of a contract is the Performance of a contract is the most usual mode of discharge. most usual mode of discharge.

• It may be byIt may be by

- Actual performance and- Actual performance and

- - Attempted performance or teAttempted performance or tender.nder.

ACTUAL ACTUAL PERFORMANCEPERFORMANCE

• When both the parties When both the parties perform perform their promisestheir promises, the contract is , the contract is discharged. discharged.

• Performance should be Performance should be complete, complete, precise and according to the precise and according to the terms of the agreementterms of the agreement..

• Most of the contract are discharged Most of the contract are discharged by performance in this manner.by performance in this manner.

Attempted performance oAttempted performance or tenderr tender

•   Tender is Tender is not actual not actual performance performance but is only but is only an an offeroffer to perform the obligation, to perform the obligation, but the promisee but the promisee refuses to refuses to acceptaccept the performance. the performance.

Discharge by Mutual Discharge by Mutual Agreement or Consent Agreement or Consent

•Since a contract is created by Since a contract is created by mutual agreement, it can be mutual agreement, it can be discharged by mutual discharged by mutual agreementagreement

Discharge by Mutual Discharge by Mutual Agreement or Consent Agreement or Consent

•Types of discharge by Types of discharge by agreement or consentagreement or consent

•a) Novationa) Novation•b) Rescissionb) Rescission•c) Alterationc) Alteration•d) Remissiond) Remission•e) Waivere) Waiver

Novation (sec. 62)Novation (sec. 62)• Novation means the Novation means the substitution of a new substitution of a new

contract for the original contract.contract for the original contract.• Such a new contract may be either between Such a new contract may be either between the the

same parties or between different partiessame parties or between different parties• The consideration of The consideration of new contractnew contract is the is the

discharge of the original contract.discharge of the original contract.

• Example:Example: A owes money to B under a contract. It is A owes money to B under a contract. It is

agreed between A,B and C that B shall agreed between A,B and C that B shall henceforth accept C as his debtor, instead of A. henceforth accept C as his debtor, instead of A. The old debt of A and B no longer exists and a The old debt of A and B no longer exists and a new debt from C to B has been contracted. new debt from C to B has been contracted.

Rescission (sec. 62)Rescission (sec. 62)• Rescission of a contract takes place Rescission of a contract takes place

when the parties to a contract may when the parties to a contract may decide that decide that they will forget the they will forget the contract and will not bring a new contract and will not bring a new contract into existence to replace it.contract into existence to replace it.

• Cancellation of contract by any party or all Cancellation of contract by any party or all the parties.the parties.

• Example:Example: X promises Y to deliver goods on 1X promises Y to deliver goods on 1stst Oct Oct

at his go-down. And Y promises to pay for at his go-down. And Y promises to pay for it on 1it on 1stst Nov. X does not supply the goods. Nov. X does not supply the goods. Y may rescind the contractY may rescind the contract..

AlterationAlteration• Alteration means a Alteration means a change in the terms of change in the terms of

a contract with mutual consent of the a contract with mutual consent of the partiesparties. Alteration discharges the original . Alteration discharges the original contract and creates a new contract. contract and creates a new contract. However, parties to the new contract However, parties to the new contract must must NOT changeNOT change..

• Example:Example:

X promises to sell and deliver 100 bags X promises to sell and deliver 100 bags on 1on 1stst Oct. And Y promises to pay on 1 Oct. And Y promises to pay on 1stst Nov. Afterwards X and Y mutually decide Nov. Afterwards X and Y mutually decide that the goods shall be delivered in 5 that the goods shall be delivered in 5 equal installments at Z’s godown. equal installments at Z’s godown.

Remission (sec.63)Remission (sec.63)• Remission means acceptance by the Remission means acceptance by the

promisee of a promisee of a lesser fulfillment of the lesser fulfillment of the promise madepromise made..

• In other words it may be defined as In other words it may be defined as acceptance acceptance of a less than what was of a less than what was contractedcontracted..

• ExampleExample A owes to B Rs 5000. A pays to B Rs A owes to B Rs 5000. A pays to B Rs

2000. B accepts it in full satisfaction. 2000. B accepts it in full satisfaction. The old debt is discharged.The old debt is discharged.

WaiverWaiver• A A waiverwaiver is the voluntary  is the voluntary relinquishment or  or 

surrender of some known  of some known right or  or privilege..• A contractual party might waive the A contractual party might waive the

performance of a contractual duty by another performance of a contractual duty by another party. A waiver doesn't have to be written or party. A waiver doesn't have to be written or even spoken -- a party may waive a even spoken -- a party may waive a contractual duty by conduct.contractual duty by conduct.

• ExampleExample

A landlord fails to object to a tenant paying A landlord fails to object to a tenant paying rent 10 days late every month, he may be rent 10 days late every month, he may be considered to have voluntarily waived on-time considered to have voluntarily waived on-time payment by the tenant.payment by the tenant.

Discharge By Discharge By impossibility of impossibility of

performanceperformance•Section 56Section 56, which deals with this , which deals with this

question, mentions two kinds of question, mentions two kinds of impossibility. impossibility.

• Firstly,Firstly, impossibility existing impossibility existing at at the time of the making of the the time of the making of the contract. contract.

• Secondly,Secondly, a contract which is a contract which is possible of performance and lawful possible of performance and lawful when made, but the same when made, but the same becomes impossible or unlawful becomes impossible or unlawful thereafter.thereafter.

1. INITIAL 1. INITIAL IMPOSSIBILITYIMPOSSIBILITY

• An agreement to do an act impossible in An agreement to do an act impossible in itself is itself is voidvoid. The object of making any . The object of making any contract is that the parties to it would contract is that the parties to it would perform their respective promises. If a perform their respective promises. If a contract is impossible of being performed, contract is impossible of being performed, the parties to it will never be able to fulfil the parties to it will never be able to fulfil their object, and hence such an agreement is their object, and hence such an agreement is void. void.

• Example,Example, A agrees with B to discover treasure by magic. The A agrees with B to discover treasure by magic. The

performance of the agreement being impossible, the performance of the agreement being impossible, the agreement is void. Similarly, an agreement to bring a agreement is void. Similarly, an agreement to bring a dead man to life is also void.dead man to life is also void.

2. SUBSEQUENT 2. SUBSEQUENT IMPOSSIBILITYIMPOSSIBILITY

• The performance of the contract may be The performance of the contract may be possible when the contract is entered possible when the contract is entered into but because of some event, which into but because of some event, which the promisor could not prevent, the the promisor could not prevent, the performance may become impossible or performance may become impossible or unlawful. Section 56 makes the unlawful. Section 56 makes the following provision regarding the following provision regarding the validity of such contracts :validity of such contracts :

• ““A contract to do an act which A contract to do an act which after the after the contract is made, becomes contract is made, becomes impossibleimpossible, or by reason of some event , or by reason of some event which the promisor could not prevent, which the promisor could not prevent, becomes void when the act, becomes becomes void when the act, becomes impossible or unlawful.” impossible or unlawful.”

2. SUBSEQUENT 2. SUBSEQUENT IMPOSSIBILITYIMPOSSIBILITY

Examples..Examples..

• A A and and B B contract to marry each other. contract to marry each other. Before the time fixed for marriage, Before the time fixed for marriage, A A goes mad. The contract becomes void.goes mad. The contract becomes void.

• A A contracts to act at a theatre for six contracts to act at a theatre for six months in consideration of a sum paid months in consideration of a sum paid in advance by in advance by B. B. On several occasions On several occasions A A is too ill to act. The contract to act is too ill to act. The contract to act on those occasions becomes void.on those occasions becomes void.

Discharge by lapse of Discharge by lapse of timetime

• The limitation act, 1963 lays down that The limitation act, 1963 lays down that a contract should be a contract should be performed within a performed within a specified periodspecified period, called , called period period of limitationof limitation. If it is not performed, and . If it is not performed, and if no action is taken by the promisee if no action is taken by the promisee within the period of limitationwithin the period of limitation, he is , he is deprived of his remedy at law.(ie the deprived of his remedy at law.(ie the contract is terminated)contract is terminated)

• For example:For example: There is a contract of loan between A  There is a contract of loan between A and B. Her limitation period is 3 years. After and B. Her limitation period is 3 years. After completion of 3rd year discharge of contract takes completion of 3rd year discharge of contract takes place and debtor – creditor relationship comes an place and debtor – creditor relationship comes an end. Thus it becomes time bared debt which cannot end. Thus it becomes time bared debt which cannot be recovered by means of legal proceedings.be recovered by means of legal proceedings.

Discharge Discharge By operation By operation of lawof law

• A contract may be discharged independently of the A contract may be discharged independently of the wishes of the parties, i.e., wishes of the parties, i.e., by operation of lawby operation of law. This . This includes discharge–includes discharge–

a)by death (in the case of contracts for personal a)by death (in the case of contracts for personal service).service).

b)By insolvency.b)By insolvency.

c)By unauthorized alteration of the terms of c)By unauthorized alteration of the terms of a written agreement.a written agreement.

d)By the identity of promissor and promisee.d)By the identity of promissor and promisee.

For exampleFor example:: X has drawn a bill on Y. Here X has  X has drawn a bill on Y. Here X has right to collect amount on the bill and Y has liability right to collect amount on the bill and Y has liability to pay. There after X has endorsed the bill to Z. to pay. There after X has endorsed the bill to Z. Where Z has got the right and liability is with Y. Where Z has got the right and liability is with Y. Assume that Z has endorsed the bill to Y. Now right Assume that Z has endorsed the bill to Y. Now right as well as liability are with Y. This situation as well as liability are with Y. This situation discharges the contractdischarges the contract

DISCHARGE BY BREACH DISCHARGE BY BREACH OF CONTRACTOF CONTRACT

• When a party having a duty to When a party having a duty to perform a contract fails to do that, or perform a contract fails to do that, or does an act whereby the performance does an act whereby the performance of the contract by him becomes of the contract by him becomes impossible, or he refuses to perform impossible, or he refuses to perform the contract, there is said to be a the contract, there is said to be a breach of contract on his part. breach of contract on his part.

• On the breach of contract by one party, On the breach of contract by one party, the other party is discharged from his the other party is discharged from his obligation to perform his part of the obligation to perform his part of the obligation. obligation.

• He also He also gets a right to sue the gets a right to sue the party making the breach of party making the breach of contract for damages for the contract for damages for the loss occasioned to him due to loss occasioned to him due to the breach of contractthe breach of contract..

• The breach of contract may be The breach of contract may be either either ACTUALACTUAL, i.e., non-, i.e., non-performance of the contract on the performance of the contract on the due date of performance, or due date of performance, or ANTICIPATORYANTICIPATORY, i.e., before the , i.e., before the due date of performance has come.due date of performance has come.

• For exampleFor example

AA is to supply certain goods to is to supply certain goods to B B on 1st January. On 1st January on 1st January. On 1st January A A does not supply the goods. He has does not supply the goods. He has made made actual breach actual breach of contract.of contract.

On the other hand, if On the other hand, if A informs A informs B on 1st December that he will B on 1st December that he will not perform the contract not perform the contract on on 1st January next, 1st January next, A A has made has made anticipatory breach anticipatory breach of contractof contract

REMEDIES OF BREACH REMEDIES OF BREACH OF CONTRACT OF CONTRACT

•A Remedy is the course of A Remedy is the course of action available to an action available to an aggrieved party (ie the aggrieved party (ie the party not at default) for party not at default) for the enforcement of a right the enforcement of a right under a contract. under a contract.

Remedies for breach of Remedies for breach of contractcontract

•Cancellation or Cancellation or Rescission Rescission

•Specific performance Specific performance •Injunction Injunction •Quantum Meruit Quantum Meruit •Damages Damages

Cancellation or Cancellation or RescissionRescission

• When the contract is broken by one When the contract is broken by one party, the other party is party, the other party is free to free to rescind and refuse further rescind and refuse further performance.performance.

• In such a case aggrieved party In such a case aggrieved party is is discharged from all the obligation discharged from all the obligation under the contract and is entitled to under the contract and is entitled to claim compensationclaim compensation sustained sustained because of the non-performance of because of the non-performance of the contract. the contract.

• Example:Example:• A, a singer contracts with B, manager A, a singer contracts with B, manager

of theatre, to sing at his theatre every of theatre, to sing at his theatre every night in every week during the next night in every week during the next two months. two months.

• B promises to pay her Rs. 1K for each B promises to pay her Rs. 1K for each night performance. night performance.

• On the sixth night A willfully remains On the sixth night A willfully remains absent from the theatre absent from the theatre

• B in consequence rescinds the B in consequence rescinds the contract.contract.

• B is entitled to claim compensation B is entitled to claim compensation for the damage which he has sustained for the damage which he has sustained through the non-fulfilment of the through the non-fulfilment of the contract. contract.

Suit for DamagesSuit for Damages

• Here the aggrieved party will go to Here the aggrieved party will go to the court of law and the court of law and ask for ask for damages or compensation for the damages or compensation for the breach of contract.breach of contract.

• They They are monetary compensationare monetary compensation allowed for the loss suffered by allowed for the loss suffered by the aggrieved partythe aggrieved party

• The object is The object is not to punish the not to punish the party party but to but to make good the make good the financial loss financial loss suffered by the suffered by the aggrieved party. aggrieved party.

Damages are of four Damages are of four kinds-kinds-

•General or ordinary General or ordinary damages damages

• Special damages Special damages •Vindictive or exemplary Vindictive or exemplary damagesdamages

•Nominal damages Nominal damages

General or Ordinary General or Ordinary damagesdamages

•In a contract for sale of In a contract for sale of goods, the measure of goods, the measure of ordinary damages is the ordinary damages is the difference between difference between contract price and the contract price and the market price of such goods market price of such goods on the date of breachon the date of breach

• Example:Example:On 1On 1stst Dec, X contracted to sell and Dec, X contracted to sell and deliver 50 tons of wheat @ Rs 8000 deliver 50 tons of wheat @ Rs 8000 per ton to Y on 1per ton to Y on 1stst Jan. On 20 Jan. On 20thth Dec, Y Dec, Y afterwards, contracted to sell those afterwards, contracted to sell those goods to Z @ Rs 10000 per ton. X goods to Z @ Rs 10000 per ton. X failed to deliver on 1st Jan, when failed to deliver on 1st Jan, when price of wheat was 9500 per ton.price of wheat was 9500 per ton.

• Y is entitled to recover Rs 75000 and Y is entitled to recover Rs 75000 and not the profit as it is the indirect not the profit as it is the indirect consequence of the breach of consequence of the breach of contract. contract.

Special damagesSpecial damages• It would be the compensation for the It would be the compensation for the

special losses caused to the aggrieved special losses caused to the aggrieved party by the special circumstances party by the special circumstances attached to the contract.attached to the contract.

• The phrase “special damages” is The phrase “special damages” is often used interchangeably with the often used interchangeably with the term term “consequential damages”.“consequential damages”.  This   This is to indicate that the damages are is to indicate that the damages are the the “consequence” of a contractual “consequence” of a contractual breach, though they might breach, though they might not not have have been directly caused been directly caused by the by the breach of contract.  . 

• Example:Example:• A, a builder, contracts to erect and finish A, a builder, contracts to erect and finish

a house by 1a house by 1stst Jan, in order that B may give Jan, in order that B may give possession of it at that time to C. A is possession of it at that time to C. A is informed of the contract between B and C. A informed of the contract between B and C. A builds the house so badly that before 1builds the house so badly that before 1stst Jan Jan it falls down, and has to be rebuilt by B, it falls down, and has to be rebuilt by B, who, in consequence, loses the rent which who, in consequence, loses the rent which he was to have received from C, and is he was to have received from C, and is obliged to make compensation to C for the obliged to make compensation to C for the breach of his contract. breach of his contract.

• A must make compensation to B for A must make compensation to B for the cost of rebuilding, for the rent lost the cost of rebuilding, for the rent lost and for the compensation made to C. and for the compensation made to C.

Punitive or Vindictive Punitive or Vindictive DamagesDamages

• Punitive damages are Punitive damages are damages that damages that punish the punish the wrongdoer in a breach of wrongdoer in a breach of contract contract lawsuit. They lawsuit. They aren't aren't based on actual economic based on actual economic lossloss like compensatory like compensatory damages.damages.

• Example:Example:

i) Breach of promise to i) Breach of promise to marry (damages are marry (damages are calculated on mental injury calculated on mental injury sustained)sustained)

ii) wrongful dishonour of ii) wrongful dishonour of cheque by a banker cheque by a banker

Nominal damagesNominal damages

• Nominal damages are awarded Nominal damages are awarded where aggrieved party has been where aggrieved party has been injured but did not incur any injured but did not incur any financial lossesfinancial losses. They are not . They are not intended to compensate the victim intended to compensate the victim but rather are awarded to but rather are awarded to vindicate aggrieved party’s rightsvindicate aggrieved party’s rights. . 

• These are called nominal These are called nominal damages, because they are damages, because they are very very small, say one rupee or one dollarsmall, say one rupee or one dollar..

Example:Example:

• An injured, who proves that a An injured, who proves that a defendant's actions caused the defendant's actions caused the injury but injury but fails to submit fails to submit medical records to show the medical records to show the extent of the injuryextent of the injury may be may be awarded only nominal damages. awarded only nominal damages. The amount awarded is generally The amount awarded is generally a small, symbolic sum, such as a small, symbolic sum, such as one dollar one dollar

Suit for Specific Suit for Specific performanceperformance

• It means It means demanding the court’s demanding the court’s directiondirection to the defaulting party to to the defaulting party to carry out the promise according to carry out the promise according to terms of the contract.terms of the contract.

• Example:Example:• X agreed to sell an old painting to X agreed to sell an old painting to

Y for Rs 50,000. Subsequently, X Y for Rs 50,000. Subsequently, X refused to sell the painting. Here, Y refused to sell the painting. Here, Y may file a suit against X for the may file a suit against X for the specific performance of the contract. specific performance of the contract.

Suit for InjunctionSuit for Injunction

• It means demanding for court’s It means demanding for court’s stay order.stay order.

• Injunction means an Injunction means an order of the order of the court which prohibits a person to court which prohibits a person to do a particular act.do a particular act.

• Where a party to a contract does Where a party to a contract does something which he promised not something which he promised not to do, the court may issue an order to do, the court may issue an order prohibiting him from doing so. prohibiting him from doing so.

Example:Example:

• W agreed to sing at L’s W agreed to sing at L’s theatre only during the theatre only during the contract. But he makes contract. But he makes contract with Z to sing at contract with Z to sing at another theatre and refused to another theatre and refused to perform the contract with L.perform the contract with L.

• W could be restrained by W could be restrained by injunction from singing for Z. injunction from singing for Z.

Suit for Quantum MeruitSuit for Quantum Meruit• Quantum Meruit means Quantum Meruit means ‘as much as ‘as much as

earned’earned’• Right to Quantum Meruit means Right to Quantum Meruit means a a

right to claim the compensation for the right to claim the compensation for the work already done.work already done.

• Example:Example:• C an owner of a magazine, engaged P to C an owner of a magazine, engaged P to

write a story to be published by installments write a story to be published by installments in his magazine. After a few installments in his magazine. After a few installments were published, the publication of the were published, the publication of the magazine was stopped. It was held that P magazine was stopped. It was held that P could claim payment for the part already could claim payment for the part already published.published.

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