BUSINESS LAW Module 1:- LAW OF CONTRACT

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

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

6. Lawful object: The object of the agreement must be lawful. In other words, it means that the object must not be (a) illegal (b) immoral, or (c) opposed to public policy (Sec 23). If an agreement suffers from any legal flaw, it would not be enforceable by law. 7. Agreement not declared void: The agreement must not have been expressly declared void by law in force in the country (Sec 24 to 30 and 56) 8. Certainty and possibility of performance: The agreement must be certain and not vague or indefinite (Sec 29). If it is vague and it is not possible to ascertain its meaning, it cannot be enforced. Example: A agrees with B to put life into Bs wife, the agreement is void as it is impossible of performance. 9. Legal formalities: A contract may be made by word spoken or written. As regards the legal effects, there is no difference between a contract in writing and a contract made by word of mouth. It is, however, in the interest of the parties that the contract should be in writing. There are some other formalities also which have to be complied with in order to make an agreement legally some enforceable. In some other case, the document in which the contract is incorporated is to be stamped. TYPES OF CONTRACT I. On the basis of validity or enforceability contract may be classified as follows 1. 2. 3. 4. 5. 6. Valid Contract. Void Contract. Void Agreements. Voidable Contracts. Unenforceable Contract. Illegal agreements.

1.

Valid Contract: Is that which is enforceable by law and it satisfies all the essential requirements laid down under section 10 of the contract act. Void Contract: An agreement which is legally enforceable when entered into but which has become void due to some supervening impossibility of performance. A Void contract is not necessarily be unlawful but is destitute of legal effects. Example: A agrees to sell his house to B at a promise of receiving Rs 40 lakh and by chance if there is an unexpected earthquake then the person cant claim that he or she did not get the house.

2.

3.

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

4.

5.

6.

II.

2.

3.

Constructive or quasi contract: The cases grouped under this type of contract have little or no affinity with contract. Example: Obligation of finder of lost goods to return them to the true owner or liability of a person to whom money is paid under mistake to repay it back cannot be said to arise out of a contract even in its remotest sense ,as there is neither offer or acceptance nor consent. E-com contract: It is the contacts over the internet. Classification of contract on the basis of performance.

4. III. 1. 2. 1.

Executed contracts. Executory contracts. Executed contracts: Is that were the parties to the contract have already performed their duties and completed all their obligations. In other words it is a completed contract. Example: A bookseller sells a book on cash payment it is an executed contract because both the parties have done what they were to do under the contract. Executory Contract: Is that were one or both the parties to the contract have to fulfil their obligations. Example: A agrees to coach B ,a pre medical student, from the first day of next month and B in consideration promises to pay A Rs 500 per month, the contract is Executory because it is yet to be carried out. Executory contract is of two types namely 1. Unilateral. 2. Bilateral

2.

1.

Unilateral: It is a contract in which a promise on one side is exchanged for an act on another side. Bilateral: It is the contract in which a promise on one side is exchanged for a promise on another side.

2.

OFFER (OR) PROPOSAL Definition: An offer is a proposal by one party to another to enter into legally binding agreement with him. A person is said to have made a proposal, when a person signifies to another his willingness to do or to abstain from doing anything with a view of obtaining the assent of that other to such act or abstinence [Sec 2(a)]

 The person making the offer is known as the offeror, proposer, or promisor and the person to whom it is made is called the offeree or proposee. When the offeree accepts the offer, he is called the acceptor or promisee. [Sec 2 (c)] Example A says to B, Will you purchase my car for 50,000? A, in this case, is making an offer to B. OFFER

HOW Express Implied Specific

WHOM General

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

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

the public to make an offer to buy goods at the marked prices. Likewise, quotation catalogues, advertisement in a newspaper for a sale of an article, or circulars sent to potential customers do not constitute an offer. 3. Newspaper advertisements are not offers: A recognized exception to this is general offer of reward to the public. Thus when A advertised in a newspaper that he would pay Rs 100 to anyone who finds and returns her lost dog, the offer is addressed to the first person who by performing the required act with knowledge of the offer of reward, creates an agreement. 4. Casual enquiry. 5. A prospector.

CROSS OFFER When two parties make identical offer to each other, in ignorance of each others offer, the offer are cross offers. In such case, the court will not construe one offer as the offer and other as the acceptance as such there can be no concluded contract. ACCEPTANCE Definition: When the person to whom the proposal is made signifies his assent it is be accepted. An offer when accepted becomes a promise [Sec 2(b)] ACCEPTANCE

Express

Implied

Acceptance may be express or implied. It is express when it is communicated by words, spoken or written or by doing some required act. It is implied when it is to be gathered from the surrounding circumstances or the contract of the parties. Example: (a) At an auction sale, S is the highest bidder. The auctioneer accepts the offer by striking the hammer on the table. This is an implied acceptance Who can accept? Acceptance of particular offer: When an offer is made to a particular person, it can be accepted by him alone. If it is accepted by any other person, there is no valid acceptance. The rule of law is clear that if you propose to make a contract with A, B cannot substitute himself for A without your consent. Acceptance of general offer: When an offer is made to world at large, any persons to whom the offer is made can accept. [Carlill v. Carbolic Smoke Ball (1893)]

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

7. It must be given by the party or parties to whom the offer is made. 8. It must be given before the offer lapses or before offer is withdrawn. 9. It cannot be implied from silence: the acceptance of an offer cannot be implied from the silence of the offeree or his failure to answer, unless the offeree has by his previous conduct indicated that his silence means that he accepts. Example: A wrote to B, I offer you my car for 50,000. If I dont hear from you in seven days, I shall assume that you accept. B did not reply at all. There is no contract. CONSIDERATION I. II. It is an essential element of a valid contract (sec 10). According to Pollock- consideration is the price for which the promise of the party is brought.

Definition: Section 2(d) of Indian Contract Act defines consideration 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, or promises to do or to abstain from doing, something, such act or abstinence or promise is called Consideration for the promise. The definition has mainly four components: a. The act or abstinence or promise which forms the consideration for the promise, must be done at the desire of the promisor; b. It must be done by the promisee or any other person; c. It may have been already executed or is in the process of being done or may be still executory. d. It must be something to which the law attaches a value. Example 1: A agrees to sell his factory to B for Rs 50,000. Here Bs promise to pay the sum of Rs 50,000 is the consideration for As promise to sell the house, & As promise to sell the factory is the consideration for Bs promise to pay the sum of Rs 50,000. Example 2: A promises his debtor B not to file a suit against him for one year on Bs agreeing to pay him Rs 100 more. The abstinence of A is the consideration for Bs promise to pay. ESSENTIAL FOR A CONSIDERATION 1. Consideration must move at the desire of the promisor: The acts done or service rendered voluntarily, or at the desire of third party, will not amount to a valid consideration. E.g.: If A sees Bs house on fire and helps in extinguishing it. He cannot demand payment for his services because B never asked his help.

2. Consideration may move from the promisee or any other person: Consideration need not move from the promisee alone but may move from a third person. This means even a stranger to the consideration can sue provided he is a party to the contact. E.g.: Chinayya vs. Ramayya In this case A, an old lady, by a deed of gift, made over certain property to her daughter R, with a direction that the daughter should pay an annuity to As brother C, as has been done by A. Accordingly, on the same day R, executed writing in favour of maternal uncle C to pay annuity. Later she declined to fulfil her promise saying that no consideration had moved from her maternal uncle. It was held that under section 2 (d) a stranger to consideration may maintain a suit. Hence the maternal uncle, though a stranger to consideration was entitled to maintain the suit. 3. Consideration may be past, present or future: The definition of consideration clearly indicates that it may consist of a past, present or a future act or abstinence. a) Past consideration: When something is done or suffered before the date of the agreement, at the desire of the promisor. E.g.: A teaches Bs son at Bs request in the month of January, & in February B promises to pay A a sum of Rs 200 for his services. The service of A will be the past consideration. b) Present consideration: It moves simultaneously with the promise. It is also called as Executed consideration. E.g.: A sells & delivers a book to B, upon Bs promise to pay for it at a future date. The consideration moving from A is present or executed consideration since A has done his act simultaneously with the promise of B. c) Future consideration: When the consideration on both sides is to move at a future date. It is also called as Executory consideration. E.g.: A promises to sell & deliver 10 bags of wheat to B for Rs 6,000 after a week, upon Bs promise to pay the agreed price at the time of delivery. 4. Consideration need not be adequate: Law only insists on the presence of the consideration & not the adequacy. It leaves the people to make their own bargains. E.g.: A agrees to sell his motorcar worth Rs 20,000 for Rs 2000 only & his consent is free, the agreement is valid contract, notwithstanding the inadequacy of the consideration. 5. Consideration must be real: t must have some value in the eye of law. It must be real & competent. i.e., it must be possible, legal, and certain. E.g.: To make a dead man alive or to run at a speed of 100 kms per hour etc 6. Consideration must be law full: Promise must be legal. E.g.: A promise to B to sell drugs which in not a law full consideration. Stranger to Contract:

1. It means a person who is not a party to the contract. Such a person cannot bring a valid suit. E.g. A mortgages his property to B in consideration of Bs promise to A to pay As debt to C, C cannot file a suit against B to enforce his promise, C being no party to the contract between A & B. A stranger can bring action in following cases: I. Where an express or implied trust is created: In case of a trust, the beneficiary can enforce the contract. E.g.: A transfers certain property to B to be held by B in trust for the benefit of C. C can enforce the agreement i.e., trust. Family settlement: Provisions are made in a partition or family arrangement maintenance or marriage expenses of female members to sue for such expenses. When the defendant constitutes himself, as agent of the third party. E.g.: If A receives some money from B to be paid over to C and he admits of this receipt to C, then C can recover this amount from A, who shall be regarded as agent of C. In case of agency: where a contract is entered into by an agent, the principal can sue on it.

II. III.

IV.

No Consideration No Contract: 1. Consideration is one of the essential elements of a valid contract. 2. It means an agreement made without consideration is void ab-intio. Exceptions: Written & registered agreement arising out of love & affection: An agreement without consideration is enforceable if: 1. 2. 3. 4. Expressed in writing. Registered under the law. Made on account of natural love & affection. Between parties standing in near relation to each other. These are the four requirements. E.g.: A promises, for no consideration, to give to B Rs 1,000. This is void agreement. I. Promise to compensate for past voluntary services: A promise without consideration is also valid, if it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or done something which the promisor was legally compellable to do. E.g.: A finds Bs purse & gives it to him. B promises to give A Rs 100. This is a contract.

II.

A promise to pay a time- barred debt: A time barred debt cannot be recovered & therefore a promise to repay such debt is without consideration. E.g.: A owes B Rs 1,000, but the debt is barred by limitation act. A signs a written promise to pay B Rs 500 on account of the debt.

III.

Bailment: Is a sort of relationship in which the personal property of one person temporarily goes into the possession of another. Bailee, Baylor relationship is Bailment. E.g.: Hiring of goods. Loan of some article etc

IV.

Completed gift: A gift doesnt require consideration in order to be valid. It should be written & registered. E.g.: property.

V.

Contribution to Charity: A promise to contribute to charity, though gratuitous, would be enforceable. A consideration need not be always something in return. In social, personal relationship charity cannot be enforceable by law. E.g.: Abdul Aziz Vs Masum Ali: The defendant promised to subscribe Rs 500 to a fund started for rebuilding a Mosque but no steps had been carried out the repairs. The defendant was held not liable & suit was dismissed.

QUASI CONTRACT Under certain circumstances, a person may receive a benefit to which the law regards another person as better entitled, or for which the law considers he should pay to the other person, even though there is no contract between the parties. Such contracts are called quasi contracts, because, although there is no contract or agreement between the parties, they are put in the same position as if there were a contract between them. KINDS OF QUASI CONTRACT 1. Claim for necessaries supplied to a person incapable of contracting or on his account: If a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by another with necessaries suited to his condition in life, the

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

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

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

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

V.

Declaration of War- on the declaration of a war, the performance of the pending contracts with the citizens of other country becomes impossible. Such contracts are either suspended or declared as void by the government.

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

c) Insolvency-a contract is discharged by the insolvency of one of the parties to it. 7. Discharge by breach of contract: The breach of contract means the failure of a party to perform his obligations. The party, who fails to perform his obligations, is said to have committed a breach of contract. The types of breach are: a) Actual Breach of Contract-it occurs when on the due date of performance or during the performance; a party fails to perform his obligations. b) Actual breach, at place. c) Actual Breach, at the Time when the Performance is Due-actual breach of contract occurs at the time when the performance due, when one party fails or refuses to perform his obligation under the contract. d) Actual Breach during the performance of the Contract-it occurs when one party fails or refuses to perform the obligation under the contract during the performance of the contract. e) Anticipatory Breach of Contract- it occurs when a party repudiates his obligation under the contract before the time for performance arrives.

REMEDIES FOR BREACH OF CONTRACT Whenever there is breach of contract the injured or thee aggrieved party (that is party not in not in default) can enforce his rights in court of law. The process of enforcing the rights is known as remedies for breach of contract.

TYPES OF REMEDIES FOR BREACH OF CONTRACT 1. SUIT FOR RESCISSON When a contract is broken by one party, the party may treat the breach as discharge and refuse to perform his part of contract. He may bring an action for the rescission of the contract. 2. SUIT FOR DAMAGES The damages means monetary compensation allowed to the injured party for the loss or injury suffered by him as a result of the breach of contract. Kinds of Damages: a) Ordinary or General or Compensatory Damages-ordinary damages are those which are payable for the loss arising naturally and directly, in the usual course, from the breach of contract. b) Special Damages-special damages are those resulting from a breach of contract under some special circumstances. When a special circumstance exists the non-performance of the promise entitles to the promisee to not only the ordinary damages but also special damages.

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