Indian Contract Act (1872)2

8/8/2019 Indian Contract Act (1872)2

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The law of contract deals with the law relating to the general principles of contract.

It affects every person in one way or the other, as all of us enter into some kinds of

contract everyday. When a person lends a book to a friend, deposit his luggage in a

railway clock room etc , he enters into a contact , though he may not be aware of

this fact. Such contracts create certain legal rights & obligations.Without the law

of contract it would have been difficult to determine & enforce the rights &

obligations of the person.

For business community,the law of contract is of great significance as all the

business transactions are based on the contracts.

The law of contract determine the circumstances under which a promise or an

agreement shall be legally binding on the person making it. It also provides the

remedies which are available in a court of law against a person who fails to fulfill

his contract and other condition , under which the remedies are available.

In India , the law relating to contracts is contained in the Indian Contract Act ,

1872. The Act came into force on the 1st day of September 1872.

It may be noted that the Indian Contract Act does not affects every usage or

customs of the trade .However both the parties , to the contract , may agreeotherwise i.e. they may agree that certain trade custom shall not apply in their

contract.

Note: Law of Contract createsjus in personam and not jus in rem.

Jus in rem means a right against or in respect of a thing.Jus in personam means a

right against or in respect of a specific person.

AJus in rem is available against the world at large. A jus in personam is availableonly against perticular person.

Eg. A owes a certain sum of money to B. B has the right to recover this amount

from A.This right can be exercised only by B and by none else against A. This

right of B is ajus in personam


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A is the owner of house .Here , A had a right to quiet possession of the house

against every member of the society. Likewise ,every member of the society is

under the obligation not to disturb As possession .This right of A is a jus in rem.

Contract :

A contract is an agreement between two or more persons which is intended to be

enforceable at law & is constituted by the acceptance by one party of an offer made

to him by the other party to do or abstain from doing some act.

Every agreement and promise enforceable at law is a contract.

The term contract is defined in Section 2(h) of the Indian Contract Act , whichreads as under :

An agreement enforceable by law is a contract.

i.e Contract is a combination of an agreement and its enforceability.

Contract = An agreement + Enforceability

An agreement is enforceable if it give rise to legal obligations (i.e. if the parties are

bound to do or not to do something)

Agreement = Offer + Acceptance

The term agreement is defined in Section 2(e) of the Indian Contract Act , which

reads as under :

Every promise and every set of promise forming the consideration for each other,

is an agreement.

The term promise is defined in Section 2(b) of the Indian Contract Act , which

reads as under:

A proposal when accepted , becomes a promise.

Or

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.


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i.e An agreement is an accepted proposal or offer.

To form an agreement , there must be a proposal or offer by one party and its

acceptance by the other.

Note: Every agreement is not a contract .When an agreement creates

some legal obligation and is enforceable by law ,it is regarded as a

contract.

Agreement becomes a contract only if the following conditions are satisfied.

The agreement must be made by the free consent of the parties.

The agreement must be made by the parties who are competent to contract.

The agreement must be made for a lawful consideration and with a lawful

object.

The agreement must not be expressly declared to be void.

Eg. A agrees to sell his car to B for Rs 10000.The agreement gives rise to an

obligation on the part of A to deliver the car to B and on the part of B to pay Rs

10000 to A.This agreement is a contract.

A promises to sell his car to B for Rs 10000 received by him as the price of thecar. The agreement gives rise to an obligation on the part of A to deliver the car to

B. This agreement is also a contract.

A invites B to a dinner. B accepted the invitation .It is a social agreement .If A

fails to serve the dinner to B, then B cannot go to Court of Law for the enforcing

the agreement. Similarly if B fails to attend the dinner A cannot go to court of law

for enforcing the agreement.


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Essentials of a Valid Contract :

According to Section 10, of the Indian Contract Act ,all agreement are contracts if

they are made by the free consent of the parties competent to contract, for a lawful

consideration and with a lawful object and are not expressly declared as void.

Following are the general conditions of enforceability and legal rules for a valid

contract.

1.There must be an offer and its acceptance .

In an agreement there must be at least two parties , one of them making the offer

and other accepting the it.The offer when accepted becomes agreement.

2.There must be mutual consent of the parties.

It means they must agree upon the same thing and in the same sense.There must be

consensus ad idem(meeting of mind)

Eg. A owned two horses,one black and the other white .He offered to sell one

horse to B.While making the offer ,A had the black horse in mind but B accepted

the offer thinking that it was made for white horse.In this case , there is no

consensus ad idem ,as the parties did not agree upon the same thing in the samesense .Thus , no agreement came into existence.

3.There must be free consent of the parties.

The contract must have been made with free consent. Consent is not free when it

is obtained by misrepresentation of facts , undue influence ,fraud etc.

Eg.A threatened to shoot Bs son unless B signs a promissory note for Rs20000 in

favour of A.B signed the promissory note under the treat. In this case ,Bs consent

is not free as it is obtained under pressure .Therefore the promissory note is not

valid.

4.There must be legal obligations.


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When two parties enter into an agreement, their intension must be to create legal

relationship between them.If the parties do not intend to create legal obligation

there is no contract between them.

In commercial or business transaction , the usual presumption is that the partiesintended to create legal obligations.The agreement which give rise to a moral or

social obligation is not a contract.

Eg. A invites B to a dinner. B accepted the invitation .It is a social agreement .If A

fails to serve the dinner to B, then B cannot go to Court of Law for the enforcing

the agreement. Similarly if B fails to attend the dinner A cannot go to court of law

for enforcing the agreement.

5.The parties must be competent to contract.

The parties to the agreement must be capable of entering into a valid contract.

Every person is competent to contract if he

- Is of the age of majority.

- Is of sound mind.

If the parties are not competent to contract then no valid contract comes into

existence.

Eg. A, a minor , borrowed Rs 500 from B and agreed to repay it within two months

.This is not a valid contract as A is not competent to contract.

6.There must be lawful consideration.

An agreement to be enforceable by law must be supported by consideration.

Consideration need not necessarily be in cash and kind. It may be an act or

abstinence from doing something or promise to do or not to do something. But it

must not be fraudulent, forbidden by law , immoral or opposed to public policy etc.

Eg.A promised to obtain an employment for B in a government department and B

promised to pay Rs 10000 to A.In this case the agreement is not valid as the

consideration for it is unlawful.

7.There must be lawful object .


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The object of the agreement must be lawful .The lawful object is that which is

neither fraudulent, forbidden by law , immoral or opposed to public policy etc.If so

it would not be enforceable by law.

Eg. A,B &C entered into an agreement for the division of gain , among them,which is to be acquired by them by fraud .In this case , the agreement is not valid

as its object is unlawful.

8. The agreement must not be declared to be void.

If certain agreements are expressly declared too be void by the law of the country,

then such agreement if entered into shall not be enforceable by Court of Law.

Eg.A agreed to pay Rs 500/- to B if he (B) does not marry through out his life.B

promised not to marry at all.In this case the agreement is not valid becauseagreement in restraint of marriage are expressly declared to be void.

9.The agreement must be certain .

The meaning of the agreement must be certain it must not be vague.

Eg. A agrees to sell B ,a hundred tons of oil.There is nothing whatever to show

what kind of oil was intended .The agreement is void for uncertainty.

10.The performance must not be impossible.

The performance of an agreement must be possible.

Eg.A agreed with B to discover treasure by magic. In consideration , B agreed to

pay Rs500 to A.In this case ,the performance of the agreement is impossible.

Therefore it is not a valid agreement.

11. Legal formalities.

A contract may be made by words spoken or written however in the interest of theparties the contract should be in writing. There are some other formalities also

which have to be complied within order to make an agreement legally enforceable

like the document in which the contract is incorporated is to be stamped etc.


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Types of Contract :

All the contracts may be broadly classified into following three main categories :

1.According to enforceability.

2.According to formation.

3.According to performance.

I.According to their enforceability,it may be :

i. Valid Contracts.

ii. Void Contracts.

iii.Voidable Contracts.

iv.Unenforceable Contracts.

II.According to formation ,it may be :

i. Express Contracts.

ii.Implied Contracts.

iii.Quasi Contracts.

III.According to their performance ,it may be :

i.Unilateral Contracts.

ii.Bilaterals Contracts.

iii.Executed Contracts.

iv.Executory Contracts.


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I(i) Valid Contract is that which satisfies all the conditions of enforceability.

I(ii) Void Contract is that which is not enforceable by law.When a valid &

enforceable contract subsequently becomes legally unenforceable due to some

reasons, it is called a void contract.

Note: Void agreement is void ab initio.It means void from the very beginning &

thus no contract comes into existence at all.( Eg. Agreement with minor.)

While Void contract is not void ab initio.Initially a valid contract comes into

existence but it becomes void & unenforceable later on.

Eg.On 1st June A agreed to sell his car to B for Rs.30000.It was agreed that the car

was to be delivered on 15th June after making full payment.But on 10 th June the car

destroyed in an accidental fire.In this case the contract between A & B becomes

void on the destruction of the car.

A contract to import goods from a foreign country .It may subsequently become

void eg when a war breaks out between the importing country and the exporting

country.

I(iii) Voidable Contracts : Contracts which can be put to an end at the option of

one party to the contract,is called a voidable contract.

If the consent of the party is not free then such party may avoid the contract.Such

contract is voidable at the option of the party whose consent is not free.

The voidable contract continue to be valid and binding till it is avoided by the party

entitled to do so.Also the party entitled to avoid contract may or may not do so.If

he desire, he may elect to be bound by it.

Eg.A intending to deceive B, falsely represented that two hundred automobile parts

are manufactured every week in his factory and there by induced B to buy the


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factory. Believing the statement to be true B bought the factory.The contract is

voidable at the option of B .In this case Bs consent is not free because it is

obtained by fraud and B may put an end to this contract if he so decided.

I(iv) Unenforceable Contracts are those which cannot be enforced in a Court ofLaw because of some technical defects. In certain cases there are special provision

of law which requires some formalities to be fulfilled like there are special

provision of law which provides that a contract must be in writing, or it must be

registered or must be properly stamped or it must be attested etc.If such formalities

are not properly observed , the contract cannot be enforced in a Court of Law.

Otherwise , such contract is perfectly valid and has all the requirements of a valid

contract.Some of such contracts can be enforced if the technical defect is removed

eg. A document requires to be stamped and it is under stamped the contract as such

is unenforceable but if the required stamp is now affixed the document becomes

enforceable.

II(i) Express Contract is that which is made in writing or by the word of mouth.

Eg.A wrote a letter to B,I am prepared to sell my car for Rs 50000.B also

accepted the offer by writing a letter.This is an expressed contract.

II(ii) Implied Contract is that which is not in words .Such a contract come into

existence on account of act or conduct of the parties or course of dealings between

them.

Eg.A went to a restaurant & took a cup of tea.In this case , there is an implied

contract that he will pay for the cup of tea.

A supplied certain goods to B on the order of C, a go between man.B accepted

the goods and paid a part of the price.In this case Bs conduct of accepting the

goods and paying the part price had resulted an implied contract between A & Band thus he(B) was held liable to pay the balance price.

II(iii) Quasi Contract : The term Quasi Contract may be defined as a relation

which resembles that created by a contract. As a matter of fact, quasi contract is

not a contract in the strict sense of the term because there is no real contract in


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existence. Moreover there is no intention of the parties to enter into a contract. It is

an obligation , which the law creates in the absence of any agreement. The parties

under such relations are put in the same position as if there was a contract between

them. The Quasi Contracts are based on the equitable principle that a person shall

not be allowed to enrich himself at the expense of another.

Eg A supplied certain goods to B by mistake .In fact , the goods were to be

supplied to C.However , B used the goods as his own .In this case A is entitled to

recover the compensation from B.And the compensation shall be at the rate of the

good at the date of the delivery of good to B.

A , a trade man , left certain goods at Bs house by mistake .B treated the goods

as his own .In this case B is bound to pay for the goods.

A & B jointly owned Rs 100 to C .A alone paid the amount to C. And B not

knowing this fact, also paid Rs 100 to C. In this case C is bound to repay the

amount to B who had paid it by mistake.

III(i) Executed Contract : When a contract has been completely performed , it is

termed as executed contract.It means that under the terms of the contract , nothing

remains to be done by either party.

Eg. A agreed to sell his horse to B for Rs 1000.B paid the price & A delivered the

horse .It is an executed contract as both the parties have performed their respective

obligations.

III(ii) Executory Contract is that where under the terms of the contract ,

something remains to be done by the parties. It mean where one or both the parties

to the contract have still to perform their obligations in future.

Eg. A agreed to sell his car to B for Rs.30000.Car was to be delivered by A on 15

th

of the next month, and price was to paid by B on 25 th of that month. It is an

executory contract as both the parties have to perform their respective obligation in

future.

III(iii) Unilateral Contract is a one sided contract in which only one party has to

perform his obligation .After the formation of a unilateral contract, only one party


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remain liable to perform his obligation as the other party has already performed his

obligation by doing some act. The unilateral contracts are also known as contract

with executed consideration.

Eg A promised to pay Rs 1000 to anyone who finds his lost dog.B found the dogand returned it to A.It is a unilateral contract which come into existence when the

dog is found. Now , only A has to perform his obligation by paying Rs 1000 to B

because B had already performed his part of obligation by finding the dog.Here

As promise to pay was for Bs act of finding the dog.

III(iv) Bilateral Contract is a two sided contract in which both the parties have to

perform their respective obligations. During the time of formation of a contract the

obligations of both the parties are outstanding. In such contract , promise on one

side is exchanged for a promise on the other. The bilateral contract are also knownas contracts with executor consideration.

Eg.A promised to paint a picture for B, and B promised to pay Rs 100 to A.It is a

bilateral contract as there is exchange of promise and obligations of both the

parties are outstanding at the time of formation of the contract.


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OFFER / PROPOSAL When one person signifies to another his willingness to do or abstain

from doing anything with a view to obtaining the assent to such act or abstinence , he is said tomake a proposal.

Offer consists of following two parts :-

a) Expression of one persons willingness to do or abstain from doing something.

b) Such expression should be made with a view to obtain the assent of the other person to

the proposed act or abstinence.

The person making the offer is known as offeror , proposer or promisor.

The person to whom the offer is made is known as offeree or promisee.

Eg. A , with a view to obtain the assent of B, says to him, will you purchase my motorcycle for

Rs.10000. In this case , A is making an offer to B as he signifies to B his willingness to sell his

motorcycle to him for Rs.10000. And A is doing so with a view to obtain Bs assent to purchase

the motorcycle.

An offer may be made by express words, spoken or written, known as an express offer. Or an

offer may also be implied from the conduct of the parties or the circumstances of the case. This

is known as implied offer.

Eg.A, advertises in a newspaper that, I will pay Rs.500 to any one who traces my missing

son.It is an express offer.

A, transport company runs buses on a particular route. There is an implied offer from the

transport company to carry passengers on the route who are prepared to pay the specified fare.

The acceptance of the offer is completed as soon as the passenger boards the bus. A passenger

who enters the bus also impliedly promises to pay the prescribed fare.

The offer can be specified as well as general.

A specified offer is one which is made to a definite person.It can be accepted only by the personto whom it is made.

A general offer is one which is not made to any particular person , but to the public at large. It

can be accepted by any person who having the knowledge of the offer , comes forward and acts

accordingly.


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Eg. A young boy absconded from his fathers house. The father offered a reward in a pamphlet

stating that anybody who traces the missing boy and brings him home will be given Rs.10000. B

who knew about the reward ,saw the boy at railway station .B sent a telegram to the boys father

that he had found his son. In this case it was decided that an offer through pamphlet was an offer

to the whole world and could be accepted by anyone who fulfills the conditions of the offer. Here

B, by tracing the missing boy , had substantially performed the condition of the offer, therefore

it was held that he was entitled to recover the amount of reward.

Cross offers : Sometimes , two persons make identical offers to each other in ignorance of each

others offer.In such cases the offers are called cross offers.In this case ones offer cannot be

treated as acceptance of others offer.

Eg. A, by a letter offered to sell his motorcycle to B for Rs.10000.Without knowing about As

offer, B also , by a letter, offered to buy As same motorcycle for Rs.10000. Both the offers

crossed each other in post.In this case, the offers are cross offers and thus , no binding contract

will come into existence.

ACCEPTANCE : An acceptance is the manifestation by the offeree of his willingness to be

bound by the terms of the offer.

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.

Eg. A offers to sell his car to B for Rs.90000.B accepts this and agrees to buy As car for

Rs.90000.In this case , a binding contract comes into existence between A & B.

Acceptance may be express or implied. An acceptance , which is expressed by words, spoken

or written, is called as express acceptance. The acceptance which is expressed by conduct is

called as implied acceptance.

Eg. A wrote to B in a letter , I want to sell my black horse for Rs.12000. B replied by a letter ,

I am ready and willing to buy your black horse for Rs.12000. Here Bs acceptance is express

acceptance as it is made in writing.

Eg. At an auction sale of a car. A is the highest bidder. The auctioneer accepts the bid (i.e. offer)

by striking the hammer on the table .It is an implied acceptance. Here , auctioneers conduct ofstriking the hammer on the table shows that the auctioneer has accepted the highest bid.

CONSIDERATION : is the price for which the promise of other is bought , & promise thus

given for value is enforceable.


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Eg A agrees to sell his car to B for Rs 140000.In this case, Bs promise to pay the sum of

Rs.140000 is the consideration for As promise to sell the car. And As promise to sell the car is

the consideration for Bs promise to pay the sum of Rs.140000/-.

Consideration may be past, present or future.

Past consideration : When consideration by a party for a present promise was given in the past,

it is said to be past consideration.

Eg. A rendered some service to B at latters desire . After a month B promise to compensate A

for the service rendered to him. It is past consideration.

Present or Executed Consideration : When consideration is given simultaneously with promise

i.e. at the time of the promise, it is said to be present consideration.

Eg. In case of cash sale.

Future or Executory Consideration : When consideration from one party to the other is to pass

subsequently to the making of the contract. It is future or executor consideration.

Eg. D promises to deliver goods to P after a week , P promises to pay the price after a fortnight

The promise of D is supported by the promise of P. Consideration of this case is future or

executor .

CAPACITY TO CONTRACT : Capacity to contract means the competence of the parties to

enter into a valid 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 & is not disqualified from the contracting by any

law to which he is subject.

Following persons are incapable of entering into a valid contract :

a) Minor

b) Person of unsound mind

c) Person disqualified by law

Minor is a person who has not attained the age of majority.(i.e. eighteen years)

Eg. A ,a minor borrowed Rs.500 from B, by fraudulently represented himself to be a major. A

refused to repay the money to B as per agreement. B sued A for the recovery of money .Here , A

can take the defense that he was minor at the time of entering into contract and hence the


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contract is void ab initio.In this case , A will get the benefit of his minority. He cant be

prevented from taking the defence of his minority.

Persons of unsound mind is one who is not of sound mind.He is incapable of understanding the

nature & contents of the contract also is incapable of forming a rational judgment about the

effect of the contract on his interest.

Eg A entered into an agreement to sell his property worth about Rs 25000 to B for Rs 7000.B

bought an action for the recovery of the property.It was proved by As mother that he was a

congenital idiot .The sale was held to be void.

Person disqualified by law : Persons , who are disqualified by the law to which they are subject,

are not competent to enter into a contract.

Eg. Alien enemies :An alien is a person who is a foreigner to the land .During the war an Indian

citizen cannot enter into a contract with an alien enemy. Contracts made before the war are either

suspended or dissolved.

FREE CONSENT : The term free consent may be defined as the consent which is obtained by

the free will of the parties and neither party was forced to give his consent .If the consent is there

but it is not free, then , the contract will be voidable at the option of the party whose consent is

not free.

Two or more persons are said to consent when they agree upon the same thing in the same sense

i.e. meeting of the mind.

Eg. A had two scooters ,one green and other of white colour .He offered to sell his green

scooter to B for Rs.8000/-. B accepted the offer thinking that it was made for white scooter.In

this case , no contract arises between A & B as there is no consent of the parties.

Consent is said to be free when it is not caused by

1) Coercion 2) Undue influence 3) Fraud

4) Misrepresentation 5) Mistake

Eg. A threatened to shoot Bs son unless B signed a promissory note for Rs 10000/- in favor ofA.B signed the promissory note under the threat .Here , Bs consent is obtained by coercion .The

promissory note is voidable .

Eg. A , an illiterate elderly women ,was possessing certain property .B , her nephew was

managing the affairs of his aunt (A ).A gifted whole of her properties to B.It was held that B,

who managed the affair of his aunt, was in a position to dominate , his aunts will.


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Eg. A, intending to deceive B, falsely represented that five tones of ice was manufactured daily

in his factory. In fact, the production was 3.5 tones/ day .The contract is voidable at the option of

B, as his consent is obtained by fraud.

Eg. A, the owner of an apple orchard , believing that all the apple trees in his orchard were the

fruit bearing trees. However , he had no sufficient ground for his belief. He stated this fact to B,

and thereby induced him to purchase the orchard. Believing this representation to be true, B

purchased the orchard .Later on , it was found that only 60% trees are fruit bearing .In this case

contract is voidable as A induced B to purchase the orchard who purchased the same relying

upon the statement.

Eg. A agreed to sell to B a specific cargo of goods supposed to be on its way from England to

Bombay. Later on it was found that the day before the bargain, the ship carrying the cargo had

sunk and the goods lost. Neither party was aware of this fact. In this case , the agreement is voidas both the parties to an agreement are under a mistake of fact.

LEGALITY OF OBJECT , CONSIDERATION & AGREEMENT :

All agreement are contract if they are made for lawful consideration and with lawful object.

Every agreement of which the object or consideration is unlawful , is void.

Object or consideration of an agreement is unlawful in the following cases :

i) Where it is forbidden by law.

ii) Where it is fraudulent.

iii) Where it is injurious to another person or his property.

iv) Where it is immoral.

v) Where it is opposed to public policy.

Eg. A, a Hindu already married and his wife alive, entered into a marriage agreement with C,

another lady. This is void agreement because second marriage is forbidden by Hindu Law. In thiscase, the object of the marriage is unlawful.

Eg. A , B & C entered into an agreement to carry some fraudulent business , and to divide the

gains of the business in equal proportion. In this case, the agreement is void because its object is

unlawful.


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Eg. A requested an editor of a newspaper to publish a defamatory article against B and promised

to pay Rs.5000/- for this work. The agreement is void as it involves injury to B and the editor

cannot recover the amount from A.

Eg. A, a bachelor gave money to B, a married women , to obtain a divorce from her husband .A

agreed to marry her as soon as she obtain a divorce .It was held that A was not entitled to recoverback the amount as the agreement was void, its object being immoral.

Eg. A paid a certain sum of money to B, and B agreed to obtain a seat for As son in a Medical

College. This agreement was held to be void being opposed to public policy.

VOID AGREEMENT : A void agreement is one which is without legal effect .

An agreement not enforceable by law is said to be void.

Following are various types of void agreement :

i) Agreements by persons who are not competent to contract.

Eg. A, a minor , borrowed Rs 500 from B and agreed to repay it within 2 months .This is not

valid contract as A is not competent to contract.

ii) Agreement under a mutual mistake of fact material to the agreement.

Eg. A agreed to sell to B a specific cargo of goods supposed to be on its way to from England to

Bombay. Later on it was found that the day before the bargain, the ship carrying the cargo had

sunk and the goods lost. Neither party was aware of these facts. In this case, the agreement is

void as both the parties to an agreement are under a mistake of facts.

iii) Agreement with unlawful consideration or object.

Eg. A, a Hindu already married and his wife alive, entered into a marriage agreement with C,

another lady. This is void agreement because second marriage is forbidden by Hindu Law. In this

case, the object of the marriage is unlawful.

iv) Agreements the meaning of which is uncertain.

Eg. A agrees to sell B ,a hundred tons of oil. There is nothing whatever to show what kind of oil

was intended .The agreement is void for uncertainty.

v) Agreement to do impossible act.

Eg.A agreed with B to discover treasure by magic. B agreed to pay Rs500 to A for this act .The

agreement is void on the ground of impossibility.


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CONTINGENT CONTRACTS :A contract may be an absolute contract or a contingent

contract.

Performance of a absolute contract becomes due immediately after making the contract. But

some times the performance of a contract is not immediately due , and it becomes so only after

happening or non happening of some contingency. Such a contracts are known as contingentcontract.

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.

Eg. A contracts to pay Rs 10000/- to B if his (Bs) house is burnt .This is a contingent contract as

its performance is dependent upon an uncertain event (i.e. burning of Bs house)

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.

PERFORMANCE OF CONTRACT :After the formation of a valid contract , the next step is

the fulfillment of the object that the parties had agreed to do . When the parties perform their

respective obligations , the object is fulfilled and the liability of the parties come to an end. After

the performance , the contract is said to be discharged.

Both the parties may discharge their respective duties either by actually performing the contractor by making an offer to perform it( tender of performance)

When a party has done, what he had undertaken to do , and nothing is left, the promise is said to

be performed. Such party is discharged from his liability under the contract.This is known as

actual performance of the contract.

The party who is bound to perform his obligation under the contract , may make an offer to the

other party to perform his obligation. An offer to perform obligation is called tender of

performance

The person who should perform the contract / By whom must contract be performed:

The contract should be performed by the promisor himself .However in certain cases, the

contract may also be performed by his representatives or agents, depending upon the intention of

the parties.

Eg. A promised to paint a picture for B.As this promise involve personal skill of A , it must be

performed by A himself.


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Eg. A promised to deliver some goods to B on certain day on the payment of Rs1000/-.A dies

before that day.In this case , As representatives are bound to deliver the goods to B.

The person entitled to demand performance / Who can demand performance:

The performance can be demanded only by a person to whom the promise is made. However , incase of death of the promisee, the legal representatives of the deceased promisee can demand

performance.

DISCHARGE OF CONTRACTS : It is defined as the termination of the contractual

relationship between the parties.

When the rights and obligations created by the contract comes to an end, the contract is said to

be discharged.

The contract may be discharged :

i) By performance

ii) By impossibility of performance

iii) By agreement

iv) By lapse of time

v) By breach

Discharge by performance :The contract is said to be discharged when parties to a contract ,perform their respective obligations which they have agreed to do.

Discharge by impossibility of performance :Sometimes the performance of a contract is

impossible .In such cases, the contract is discharged because the parties cannot perform their

respective obligations.

Eg. A contracted to sell to B certain quantity of potatoes to be grown in his farm .Subsequently ,

the crop of potatoes was destroyed by a disease .And A failed to supply the contracted quantity

of potatoes to B. It was held that the contract was discharged as the performance had become

impossible due to the destruction of potatoes.

Discharge by agreement : A contract may be discharged by mutual agreement of the concerned

parties .The parties may enter into a fresh agreement which provides for the extinguishment of

their rights and obligations created by the original contract.

Eg A agreed to supply to B 50 bags of rice at the rate of Rs100/bag. The delivery was to be made

in 5 equal installments, the 1st supply was to be commence from 1 st June .Subsequently , A & B


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entered into an agreement that the delivery would be made in two equal installments and the

price would be Rs 105/bag. In this case, the old contract is discharged & the parties become

bound by the contract with changed terms.

Discharge by lapse of time : The contract must be performed within the period of limitation .If it

is not performed and if no action is taken by the promise within the period of limitation, he isdeprived of his remedy at law.

Eg. A borrowed Rs 5000 from B , a money lender and agreed to repay the loan on 31 st

March1983. On 31st March 1983 , A failed to repay the loan .But B did not take any legal action

against A till 31st March 1986.In this case B cannot recover the amount of loan from A as the

limitation period for the recovery of loan is 3 years from the date of default, which has expired.And thus , A is discharged from his liability to pay the loan.

Discharge by Breach of Contract :

Breach of contract means a breaking of the obligation which a contract imposes. Or the failure ofa party to perform his obligation.

It occur when a party to the contract without lawful excuse does not fulfill his contractual

obligation or by his own act makes it impossible that he should perform his obligation under it .It

confers a right of action for the damage on the injured party.

The breach of contract is of the following two types :

i) Actual Breach ii ) Anticipatory Breach

Actual Breach of Contract: It occurs when on the due date of performance or during theperformance, a party fails to perform his obligations .If the time is not of essence of the contract ,

the party , who has failed to perform the contract on due date , sometimes expresses his

willingness to perform the obligation after the other may accept the performance subject to the

payment of compensation for the failure to perform the obligation at the appointed time.

Also sometimes, one party , no doubt, perform his obligations but not strictly according to the

contract. It also entitles the aggrieved party to claim damage from the defaulting party.

Eg. A agreed to sell his car to B on 1 st June .But on 1st June , A refuses to sell the car to B. On

As refusal to sell the car , there occurred a breach of contract .And B can hold A liable for the

breach of contract.

Eg A , a shoe manufacturer , contracted with B, a dealer in shoe , to supply him 500 pairs of shoe

at a certain price. The shoes were to be delivered in installments. After the supply of 200 pairs ofshoes, B told A that no more shoes are required. In this case , the breach of contract was

committed during the performance of the contract.


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Anticipatory Breach of Contract : It occurs when prior to the due date of performance , the

promisor absolutely refuses or disables himself from the performance of his obligations.

Eg A contracted to supply to B 100 pieces of spark plugs on 15 th Dec 1997.But before the due

date of performance (i.e.15th Dec1997) A informed B that he is not going to supply the spark

plugs at all. On As refusal to supply the goods , the anticipatory breach of the contract occurs.And B may put an end to the contract.

Sometimes , the anticipatory breach is accepted by the aggrieved party and the contract is

immediately put to an end .The amount of damage will be measured by the difference between

the price prevailing on the date of breach and the contract price.

Sometimes , the anticipatory breach is not accepted by the aggrieved party and the contract is

kept alive till the time of performance of contract. The damage will be the difference betweenprice prevailing on the date of the performance and the contract price.

Eg. A agreed to supply to B 10 bags of wheat @ Rs300/bags. According to the terms of thecontract , the supply of the bags was to be made on 1 st Jan1996.Before this date , A informed B

that he would not supply any wheat to him. On As refusal, B put an end to the contract , and

purchases 10 bags of wheat from C @ Rs320/bags( the prevailing price at the time of breach).In

this case , the loss suffered by B is Rs 20/bag.(320-300).And thus , B is entitled to recover Rs

200 from A by way of damage.(10*20)

Eg. A agreed to supply to B 50 tins of ghee @ Rs400/tin. According to the terms of the

contract , the supply of the ghee was to be made on 1st Dec1986. Before this date , A informed B

that he would not supply any ghee to him. However B kept the contract alive and waited till Ist

Dec 1986. On this date also ,A failed to supply the ghee to B. The price prevailing on 1 st

Dec1986 was Rs 410/tin. In this case , the damage will be calculated @ Rs 10/tin (410-400).And

thus , B is entitled to recover Rs 500 from A by way of damage.(10*50)

REMEDIES FOR BREACH OF CONTRACT : The parties to a contract are bound to

perform their respective obligations .If a party refuses to perform his respective obligations , the

breach of contract take place. And the other party (i.e. the aggrieved party) can enforce his rights

in the court of law. The process of enforcing the right is known as remedies for breach of

contract.

Following types of remedies are available to the aggrieved party :-

i) Suit for rescission

ii) Suit for damage

iii) Suit for quantum meruit

iv) Suit for specific performance


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v) Suit for injunction

Suit for rescission : Rescission may be defined as the cancellation of the contract. Where a

party commits a breach , the other party becomes entitled to put an end to the contract. On

the rescission of the contract, the aggrieved party is discharged from all the obligations under

the contract.

Eg A agreed to sell his car to B for Rs 50000/-.And B agreed to pay the price after the

delivery of the car. Subsequently A refuses to deliver the car to B. In this case , B become

entitled to cancel the contract. And on the cancellation, he shall be discharged from the

obligation under the contract.(i.e. he cannot be asked to perform the contract and pay the

price)

Suit for damage :Damage may be defined as the monetary compensation payable by the

defaulting party to the aggrieved party for the loss suffered by him. The damages are given

by way of compensation for the loss suffered by the aggrieved party .The aggrieved party

may , therefore , bring an action for the damages against the party who is guilty of the breach

of the contract. And the party , guilty of breach , is liable to pay damage to the aggrieved

party.

Eg A contracts to sell and deliver 50 quintals of farm wheat to B at Rs 475/quintals, the price

to be paid at the time of delivery. The price of wheat rises to Rs 500/quintal and A refuses to sell

the wheat. B can claim damage @ Rs 25/quintal (500-475)

Eg. A, a builder , contracts to erect a house for B by the 1 st of January, in order that B may give

possession of it at that time to C to whom B has contracted to let it. A is informed of the contract

between B& C. A builds the house so badly that before the 1 st Jan, it falls down and has to be

rebuilt by B, who in consequences , loses the rent which he was to have received from C and is

obliged to make compensation to C for the breach of contract. A must make compensation to B

for the cost of rebuilding the house , for the rent lost , & for the compensation made to C.

Suit of Quantum Meruit : Literally Quantum Meruit means as much as earned .In legal

sense , it means the payment in proportion to the work done .A person can recover compensation

in proportion to the work done by him. But where the contract requires complete performance as

a condition for payment, the party in default cannot claim payment for the work done on the

basis of quantum meruit.

Eg A was engaged by B to write a book to be published in installments in a weekly magazine

.After a few issues of the magazine had appeared , the magazine was discontinued .It was held

that A could recover on quantum meruit for the work done under the contract.

Suit for 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.


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The court may, at their discretion , order specific performance of contract in the following cases :

When the act agreed to be done is such that compensation in money for its non performance is

not an adequate relief.

When there exists no standards for ascertaining the actual damage caused by the nonperformance of the contract.

Eg A agreed to sell an old painting of Mughal period to B for Rs 5000/-.But subsequently A

refuses to sell the painting .In this case, B may file a suit against A for the specific performance

of the contract.And the court may order A to sell the painting to B as agreed.

Suit for injunction : Injunction may be defined as an order of the courts restraining a person

from doing something which he promised not to do . It is a mode of securing the specific

performance of the negative terms of a contract.

Eg A , a singer , agreed to sing at Bs theater for certain period. She further agreed that duringthe prescribed period she will not sing at any other theater. Afterwards , A made a contract with

C to sing at his theater & refuses to sing at Bs theater. B filed a suit restraining A from singing

at Cs theater. It was held that although A could not be compelled to sing at Bs theater but she

could be restrained by injunction from singing at Cs theater.

Documents

Indian Contract Act (1872)2