CONTRACT LAW

• CORPORATE LEGAL ENVIRONMENT

• ‘Law’ in simple terms means ‘Rules’
• With the growth of society and welfare state
civilization has demanded a reformed set of rules
time and again.
• Laws have been often being subject to change to
meet the practical needs of society and attempting
to achieve security and uniformity in its application.
• Law includes all the rules & principles which
regulate our relations with other individuals and with
the state.
• By Austin – “A law is a rule of conduct imposed and
enforced by the Sovereign.”
• The terms ‘Business’, Commercial’ and ‘Mercantile’ are
synonymous.
• Business law is a branch of General law (civil). It relates
to industry, trade & commerce.
• It should be understood that business law is not
altogether distinct and separate form other branches of
law.
• With the growth of trade and commercial, old acts were
amended and other new Act were introduced to meet the
requirement of time.
• Mercantile law deals with rights & obligations arising out
of mercantile transactions or business transactions.
• A mercantile person is one who enters into business
transactions and may be an individual, an association of
persons such as partnership or a company. Mercantile
law is also called as Business law or Commercial law.
• For proper conduction of business, set of rules and
regulations are essentially required in order to control and
monitor the business activities.
• With the complexities of modern business world, the
scope of business law had widened enormously.
• It includes :
• Contract Law
• Partnership law.
• Sales of Goods
• Negotiable Instrument
• Arbitration
• Company Law
• Out of all these law, contract law is applicable and basis
of Mercantile law. All these laws are subject to
amendments made by State or Central Govt as per the
needs and requirement at a given point of time, but since
these are statutory laws, minimum changes are effected.
CONTRACT LAW, 1872
• Law of Contract is mainly based on English Common
law. It commenced from 1st Sept. 1872.
• Scheme of the Act :
• General principles of law of Contract (Sec. 1-75).
• Specific kind of contract : (Sales & Goods Repeated)
• Contract of Indemnity & Guarantee. (Sec. 124-147)
• Contract of Bailment and pledged. (Sec. 148-181).
• Contract of Agency (Sec . 1822-238).
General Interpretation & Def. :
Sec 2
• (a) When one person signifies to another his
willingness to do or to abstain from doing anything,
with a view to obtaining the assent of that other to such
act or abstinence, he is said to make a proposal.
(b)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.
(c)The person making the proposal is called the ‘Promisor’
and the person accepting the proposal is called the
‘Promisee’.
(d)When at the desire of the Promisor, the Promisee or any
other person has done or abstained from doing, or
promises to do or to abstain from doing, something,
such act or abstinence or promise is called as
consideration for the promise.
(e)Every promise and every set of promises forming the
consideration far each other is an agreement.
(f) Promises which form the consideration or part of the
consideration for each other, are called Reciprocal
promises.
(g) An agreement not enforceable by law is said to be void.
(h)An agreement enforceable by law is contract.
Essential of a Valid Contract
As per Sec 2 (b)
“An agreement enforceable by law is a “CONTRACT”.
For an agreement to become a contract following
essential conditions or elements must be fulfilled –
1. Offer & Acceptance – It means there must be an
offer by one party and its acceptance by the other.
The offer when accepted becomes agreement.
2. Mutual Consent – the parties to an agreement must
have mutual consent. They must agree upon the
same thing in same manner.
Ex- Black & White horse.
3. Legal Obligation – An agreement must create legal
obligation, which means obligation which is
enforceable by law.
Ex : Invitation to dine, failing to serve, cannot sue (Social
agreement).
4. Free consent - There must be free consent of the of
the parties, a consent is not free, when it is obtained by
coercion, undue influence, fraud or misrepresentation of
facts etc. NO VALID CONTRACT IF NO FREE
CONSENT.
• Ex : Signing of documents.
5. Parties must be competent to contract : Parties must
be capable of entering into contract.
• Minor, persons of unsound mind are not competent to
contract.
NO VALID CONTRACT IF PARTIES NOT COMPETENT.

6. Lawful Consideration : In a contract there must be a

lawful consideration. Lawful consideration is that which
is not fraudulent, forbidden by law, immoral or apposed
to public policy.
• Consideration is the price of promise, or something in
return.
• Ex: A agrees to sell his car to B for 1,00,000, now B’s
promise to pay the 1,00,000 is consideration for A . and
Vice – versa.
7. Lawful object : Object of the agreement must be lawful.
Lawful object means which is not fraudulent, forbidden by
law etc. IF THE OBJECT IS NOT LAWFUL THERE IS
NO VALID CONTRACT.
Ex: Agreement for distributing money gained from
unlawful means.
8. The Agreement must be certain : Meaning of the
agreement should be certain. An agreement whose
meaning is not certain is not valid.
Ex : A agreed to B to sell ‘ a hundred tones of oil. Here it
is not clear what kind of oil it is.
9. The performance must not be impossible - The
performance of an agreement must be possible. An
agreement to do impossible act is not valid.
• Classification of Contracts :
• According to enforceability i.e. Legal validity.
• According to formation i.e. Mode of creation.
• According to performance.
According to enforceability -
• Contract may be classified into the following types
according to their enforceability or legal validity –
1) Valid contract – a contract enforceable under law is a
valid contract (Sec. 10).
2) Void Contract – a contract which is not enforce able by
law. Ex: Car Destroyed - cannot be sold.
3) Voidable Contract – ‘Free Consent’ is an important
aspect of a contract. Now if the consent of a party is
taken by fraud or other illegal means then the contract is
voidable at the instance of the party being defrauded.
• Ex : Factory production – 200 units, where as in reality it
produced 1000 units, the purchaser has an option to put
an end to the contract.
4) Unenforceable Contracts – are those which cannot be
enforced in a court of law because of some technical
defects, e.g. If there is a requirement that at contract
must be in writing or it must be registered, or it be
properly stamped, then if these requirement are not met
then the contract becomes unenforceable, though it is a
valid contract otherwise.
II. Classification of Contract according to their mode of
creation or formation
1.Express Contract : is that which is mode in writing or by
the words and month.
• Ex : A wrote a letter to B, ‘I am prepared to sell my car for
Rs. 50,000,. B accepted the offer by letter. This is a
Express contract.
2. Implied Contract – is that which is not made in words.
Such contracts come into existence on account of act or
conduct of the parties.
• Ex: A went to a restaurant, and took a cup of tea. In this
case, there is an implied contract that he will pay for the
cup of tea.
3. Quasi – Contract – are not contracts as there is no
intension of the parties to enter into a contract. It is an
obligation which the law creates in the absence of any
agreement.
• Ex : A, a tradesman, left certain goods at B’s house by
mistake. B treated the goods as his own. B is bound to pay
for the goods.
III.Classification of Contracts according to their
performance -
1. Unilateral contract – is a one sided contract in which
only one party has to perform his obligation while the
other party has performed his obligation.
Ex : A, advertise for his lost son, t hat the would pay
50,000 to any one who find him, B found the boy, in this
case B has already performed his obligations and then
the contract courses into being, whereas now it only
remains that A pays Rs. 50,000 to B.
2. Bilateral Contract – is one in which both obligation are
outstanding, for the parties.
• Ex : Am agrees to coach B, a premedical student form
the first day of the next month, and B in consideration
promise to pay Rs. 1000 as per month such a contract
is bilateral as both parties are required to discharge their
obligation.
 OFFER & ACCEPTANCE
PROPOSAL OR OFFER :
Essentials for an offer or proposal
• i) There must be an expression of the willingness.
• ii) The expression of willingness to do or to abstain
from doing something must be to another person.
• iii) The expression of willingness to do or to abstain
from doing something must be made with a view to
obtain the assent of the other person to such act or
abstinance.
Rules regarding a Valid Offer :
• 1) An offer may be ‘expressed’ or ‘implied’.
• Ex : A say to B that he is willing to sell his mobike to
him for Rs. 20,000 this is an expressed offer.
• Ex: A shoe shiners starts shining some one’s shoes
without being asked to, so in such case any reasonable
man would guess that he expects to be paid for this.
2) An offer must give rise to legal consequences.
• Ex: Offer of dinner at friends place, or offer to one’s wife
to show her a movie are not valid offer.
• But in business transactions for any agreement it is
taken for granted that parties intend legal consequences
to follow.
3) The term of offer must be certain and not vogue.
4) An invitation to offer is not an offer.

Ex: An advertisement for sale of goods by auction does

not amount to an offer, it merely invites offer, actual bids
are made at the auctions are ‘offers’.
5) An offer may be ‘Specific’ or ‘General’.
• Ex: Made to definite persons, or general public or world
at large.
6) An offer must be communicated to the offers.
• Unless the offer is made known to the offeree there ca be
no acceptance and no contract.
• Ex: A, without knowing that a reward has been offered for
arrest of a particular criminal, catches the criminal and gives
the information to the police. A cannot recover the reward
as he cannot be said to have accepted the offer when he
was not aware of it.
7. An offer can be made subject to any terms and conditions.
Lapse & Revocation of offer
1) An offer lapses after stipulated or reasonable time.
• An offer lapses if acceptance is not communicated within
the time prescribed in the offer or within a reasonable time.
• Ex: An application for allotment was made on 8th June, the
company notified its allotment on 23 November,. It was
held that the offer head lapsed due to delay of the company
in notifying their acceptance, so the person was not bound
to accept the shares.
2) An offer lapses by rejection made by the offeree, it can
be by spoken words,in writing or implied.
3) An offer lapses by the death or insanity of the offeror or
the offeree before acceptance.
4) An offer lapses by revocation, at any time before
acceptance, by communication of notice of revocation by
the offeror to the other party.
Ex : An Auction sale, A makes the highest bid, but
withdraws before the fall of hammer, thus, the offer is
revoked before its acceptance.
5) Revocation by non-fulfilment of a condition precedent to
acceptance.
Ex: A offers to sell his can to B if he joins his club, now
B’s joining the club is a condition precedent in this case.
Acceptance
When the person to whom the proposal is made signifies
his assent, the proposal is said to be accepted
Legal Rules for a valid Acceptance :
1. Acceptance must be given only by the person to whom
the offer is made. If you propose to make a contract with
A, then B cannot substitute himself for A without your
consent.
Ex : Class of people or world at large.
2. Acceptance must be absolute & unqualified (Counter
offer)
Even slight deviation from term of offer makes the
acceptance invalid.
3. Acceptances must be expressed in some usual and
reasonable manner, unless the proposal prescribed the
manner in which it is to be accepted.
i.e., Express & Implied.
4. Acceptance must be communicated by the acceptor.
5.Acceptance must be given within a reasonable time
and before the offer lapses and/or is revoked.
6. Acceptance must succeed the offer.
7. Rejected offers can be accepted only if renewed.
Communication of Offer, Acceptance & Revocation
1. Communication of an offer is complete when it comes to
the knowledge of the person to whom it is made.
2. Communication of acceptance has two aspects – as
against the proposer and as against the acceptor.
The communication of an acceptance is complete (a) as
against the proposer, when it is put in a course of
transmission to him, so as to be out of power of the
acceptor and (b) as against the acceptor when it comes
to the knowledge of the proposer i.e. when the letter of
acceptance is received by t he proposes.
3. Communication of a revocation
• The communication of a revocation is complete (a)
against the person who makes it when it is put into
course of transmission to the person to whom it is made,
so as to be out of the power of the person revolving. (b)
as against the person to whom it is made, when it comes
to his knowledge i.e. when the letter of revocation is
received by him.

CAPACITY OF PARTIES
MINOR
• A person, domiciled in India, who is under 18 years of
age is a minor. But in case where guardian is appointed
by a court, and minors whose property superintendence
has been assumed by a court of words, in that case
majority attainment is considered at the age of 21 years.
• Minor’s Agreements
• 1) An agreement by a minor is absolutely void and
inoperative as against him law acts as the guardian of
minors and protect their right because their mental
faculties are not mature.
• No Restitution except in certain cases – A minor cannot
be ordered to make compensation for a benefit obtained
under a void agreement.
• Court may compel restitution by a minor when he is a
plaintiff.

• Ex- A minor sells a house for 5,00,000 and later files a

suit to set aside the sale on the ground of minority, then
he may be directed by the court to return the purchase
money received by before he can recover possession
of the property sold. (Jager Nath Singh V/s Lalta
Prasad).
2. Beneficial agreement are valid contract.
• Court protects the right of minors. Thus any agreement
which is of some benefit to the minor and under which he
is required to bear no obligation is valid.
• A natural guardian is empowered to enter into a contract
on behalf of the minor and the contract would be binding
and enforceable if the contract is for the benefit of the
minor.
• Ex : When a Minor purchaser of property was, after his
purchase, dispossessed by a third party, it was held that
the minor could recover from his vendor the sum which he
has paid as purchase price.

3) Contract of apprenticeship and Service by Minor :

• A Contract of apprenticeship is valid and binding upon a
minor (not less than 14 years of age) because such a
contract is protected by Apprentices Act 1961.
• This was to enable children learn trades, craft etc. so
that when they are of full age they may gain a livelihood.
• Ex : An agreement of service by a minor is valid because
a minor’s promise to service would no consideration for
the promise of the other party to pay him salary.

4) No ratification on attaining the age of majority –

“Ratification means subsequent acceptance of an
agreement or act.’.
• A minor’s agreement is nullity or void, it cannot be
ratified on attaining majority age.
• Ex : If an advance is made to a minor during his minority,
a promise to pay back after he attains age of majority is
not enforceable.

5) Rule of estoppels does not apply to a minor.

• ‘Estoppel’ has been defined u/s 115 of Evidence Act.
• Accordance of Lord Halsburg ‘Estoppel arises when you
are precluded or prevented from denying the truth of
anything which you have represented as a fact although
it is not a fact.’
• But a minor cannot cheat by representing in a contract as
a major.
6) Minor Liability for necessaries -
• Sec 68 of Contract act applied – ‘If a person incapable
of entering into a contract is supplied by another person
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.
• Ex : A supplies B, a lunatic, with necessaries suitable to
his condition in life. A is entitled to be reimbursed from
B’s property.
7) Specific Performance – means actual carrying out of the
contract as agreed.
• Court shall never direct ‘specific perf.’ Of an agreement
made by a minor, which is void.
• But a contract entered into on behalf of Minor by his
guardian or manager of his estate is binding on the
minor can be specifically enforced by as against the
minor provided (a) the contract is within the authority of
the guardian or manager (b). it is for the benefit of the
minor.
8) Minor Partner – A minor is incompetent to contract.
• But as per sec. 30 of Contract Act he can be admitted to
the ‘benefit of partnership’ with the consent of all the
partners by an agreement executed through his lawful
guardian with other partners.
• A minor cannot participate in the management of
business.
• He shall not share losses except for 3rd party liabilities
and that too upto his share in the partnership assets.
Free Consent
• Sec. 13 Contract Act defines the term ‘Consent’ as ‘Two
are more person are said to consent when they agree
upon the same thing in the same sense.
• See 14 lays down that – Consent is said to be ‘Free’ when
it is not caused by
• Coercion – Sec. 15
• Undue influence -= Sec. 16
• Misrepresentation – Sec. 18
• Fraud – Sec. 17
• Mistake – Sec. 17

Coercion

Coercion implies
• Committing or threatening to commit any act forbidden by
IPC.
• Unlawful detaining or threatening to detain any property,
with the intention of causing any person to enter into an
agreement.
• Ex : A threatens to shoot B, if he does not let out his
house to him B agrees to let out his house to A. The
consent of B is induced by coercion.
• Threat to commit suicide –
• Neither ‘suicide’ nor ‘threat to commit suicide’ is
punishable under I.P.C. only ‘an attempt to commit suicide
is punishable under it.
• Duress - means either actual or threatened violence over
the person (body) of another party or his wife or children
with a view to obtain the consent of that party to the
agreement.
• Effect of Coercion – A contract brought about by
coercion is voidable at the option of the party whose
consent was taken by coercion (Sec. 19).
• The burden of proof that coercion was used
lies on the party who want to set aside the
contract on the plea of coercion.

Undue Influence
• ‘A contract is said to be induced by undue
influence where -
• The relations subsisting between the parties
are such that one of the parties is in a
position to dominate the will of the other,
• He uses the position to obtain an unfair
advantage over the other.
Sec. 16(2) – A person is deemed to be in a position to
dominate the will of another –

• (a) Where the holds a real authority over the other, e.g.
the relationship between master and servant, police
officer and the accused or –

• (b) Where he stands in a Fiduciary relation e.g. relation

of mutual trust and confidence.

• Ex: Father and son, guardian, & ward, solicitor and

client, doctor and patient, Guru & disciple.
(c) Where he makes a contract with a person whose mental
capacity is affected by age, illness or bodily distress,
e.g. old illiterate persons.
• Presumption of undue influence is taken merely by the
status of the parties as in case of (a), (b), & (c).
• No presumption of undue influence taken in following
cases :
• Husband & wife.
• Mother & daughter
• Grandson & Grand father
• Creditor & Debtor.
• In these cases the burden of proof lies with the person
who alleges that undue influence exists.

• Effect of Undue Influence –

• The contract is voidable at the option of the party whose
consent was so caused.
Misrepresentation
• A statement of fact made by one party to the other either
before or at the time of making contract, relating to some
matter essential to the formation of the contract, with an
intension to induce the other party to enter into the
contract.
• Misrepresentation can be –
• innocently made or (b) Intentional
• For misrepresentation which is made intentionally, the
term ‘Fraud’ is used.
• Ex : A makes B to believe that his land produces 10
quintals of wheat per acre, B purchases that land taking
the statement of A to be true, later on it transpires that
land produces only 5 quintal of wheat. This is
misrepresentation.
• Ex. Business Sales 50,000 per month Negotiations, Sales
drops to 5,000/ month, the party did not disclose this fact’s
contract of sale made. This is misrepresentation.
• Fraud
• Sec 17 – State that ‘Fraud’ means the following acts
committed b y a party to a contract, with connivance or by
his agent, with intentions to deceive or to induce another
party thereto or his agent, to enter into the contract -
1. The suggestion that a fact is true when it is not true by
one who does not believe it to be true. (But if a
representor honestly believes his statement to be true,
he cannot be liable for deceit no matter how ill-advised,
stupid or negligent he may have been.
2. The active concealment of a fact by a person who has
knowledge or belief of the fact.
• But mere non- disclosure is not fraud, where there is no
duty to disclose.
• E.g. Caveat Emptor – ‘Buyer Beware’ .
A seller is not bound to disclose to the buyer the faults in
the goods he is selling.
3. A promise made without any intention of performing is a
Fraud.

• Ex : X purchase certain good from Y on credit without

any intention of paying them as he was an insolvent. It is
a clear case of fraud from X’s side. But mere failure to
pay, where there was no original dishonest intention, is
not fraud.

4. Any other act fitted to deceive – All surprises, trick,

cunning, and other unfair way that is used to cheat any
once is considered fraud.
Indemnity and Guarantee
• Indemnity
• ‘A contract by which one party promises to save the other
from loss caused to him by the conduct of the promisor
himself or by the conduct of any other person, is called a
Contract of Indemnity.
• Contract of Indemnify is really a part of general class of
‘Contingent Contract’. The object is to protect the promisee
from anticipated loss.
• Happening of loss is the contingency upon which the
contract of Indemnity depends.
• The person who promises to make good the loss is called
the ‘Indemnifier’ (Promisor) and the person whose loss is to
be made good is called the ‘Indemnity-Holder’ (Promisee).
• Ex; A contracts to indemnify B against the consequences
of any legal proceedings which C may take against B in
respect of a certain sum of Rs. 1,00,000. This is a contract
of indemnity A is Indemnifier B is the ‘Indemnified.
Guarantee

• ‘A contract of Guarantee is a contract to perform the

promise of discharge the liability of a third person in case
of his default’. (Sec. 126)
• ‘A contract of Guarantee is entered in with the object of
enabling a person to get a loan or goods on credit or an
employment.’
• The person who gives Guarantee is called the ‘Surety’
the person in respect of whose default the guarantee is
given is called the ‘Principal Debtor’, and the person
whom guarantee is given is called the ‘Creditor’.
• A guarantee may be either Oral or Written.
• Ex : A, advances a loan of Rs. 5000 to B and C promises
to A that if B does not repay the loan than C will do so.
This is a contract of Guarantee.
Distinction between a contract of Indemnity and a Contract
of Guarantee.
1. Number of Parties – In contract of Indemnity there are
2 parties – the Indemnifier and the Indemnity Holder.
In contract of Guarantee there a 3 parties the creditor,
the principal debtor and the surety.
2. A contractor of Indemnity is not the reimbursement of
loss, where as a contract of Guarantee is for the
security of a debt or good conduct of an employee.
3. No. of Contract – In indemnity there3 is only one
contract between the Indemnifier and the Indemnified.
In guarantee there are 3 contracts :
Between Principal Debtor and Creditor
• Between Creditor & the Surety.
• Between Surety and the Principal Debtor.
4. Nature of liability – In indemnity the liability of
indemnifier is Primary in nature. In Guarantee the
liability o surety is secondary i.e. the surety is only
liable in case of default by Principal Debtor.
5. Existing debtor duty – In case of Indemnity in most cases
there is no existing debt or duty, whereas in case of
Guarantee there is an existing debt or duty, the
performance of which is guaranteed by the surety.
• 6. Right to Sue – In guarantee, the surety after the
discharge the debt awing to the creditor, can proceed
against the Principal debtor.
• In Indemnity, the indemnifier cannot sue the 3rd party for
the loss in his own name, because there is no privities
of contract.
• Ordinary Guarantee and Continuing Guarantees
• When guarantee is given for a single specific debt or
transaction, is called ordinary Guarantee. It comes to an
end as soon as the liability under the transaction end.
• When a guarantee extends to a series of distinct and
separable transactions, it is called a ‘Continuing
Guarantee’. The guarantee given here is intended to
cover a number of transactions over a period of time.
(Standing offer).
Bailment & Pledge
• Sec 148 Contract Act - A bailment is the delivery of goods, by one
person to another for some purposes, upon a contract that they
shall when the purpose is accomplished, be returned or disposed
it according to the directions of the person delivering them.
• The person delivering the goods is called ‘Bailor’ and the person
to whom they are delivered is called the ‘Bailee’ and the
transaction is called the Bailment.
Kind of Bailment –
1) Bailment for the exclusive benefit of the bailor – bailor leaves
goods in the safe custody of the bailee without any compensation
to be paid.
2) Bailment for the exclusive benefit of the bailee e.g. a loan of some
article.
3) Contract for repair, hire etc call in this close, wherein the bailor
receives the benefit of service and the bailee benefits by the
receipt agreed charges.
• Difference between ‘sale’ and ‘bailment’
• Different between ‘Bailment’ & ‘License’
• Duties of Bailee
• Duty to take reasonable case of goods delivered to him.
• Duty not make unauthorized use of goods entrusted to
him.
• Duty not mix goods bailed with his own goods.
• Duty to return the goods.
• Duties of Bailor
• Duty to disclose faults in goods bailed
• Duty to repay necessary expenses in case of gratuitous
bailment.
• Pledge or Pawn
• ‘The bailment of goods as security for payment of a debt
or performance of a promise is called ‘Pledge’. ‘Bailor in
his case is ‘Pawaer and bail is Pawaee.
• Distinction between bailment and pledge
• As to purpose
• AS to right of sale.
• As to right of using the goods.
 Discharge of Contract
When the right and obligations arising out of a contract are
extinguished the contract is said to be discharged or
terminated.
• A contract may be discharged in the following ways –
• 1. By Performance – Actual or attempted
• Actual Performance –
• Each party fulfills its obligation within time and in required
manner as per contract and the contract come to an end or
stands discharged.
• But if one party performs its promise he alone is
discharged, and such a party gets a right of action against
the other party who is guilty of Breach of contract.
• Attempted Performance –
• When the promisor offers to perform his obligation under
the contract, but is unable to do so because the promise
does not accept the performance, it is called ‘attempted
performance’ or ‘Tender’ This tender is only an ‘offer to
perform’
2. Discharge by Mutual Consent or Agreement -
A contract is created b y means of an agreement it may also
be discharged by another agreement between the same
parties.
Sec. 62 & 63 provides for the following methods discharge.
1) Novation – means substitution of a new contract in place of
old contract, the consideration being the discharge of the
old contract.
The parties to contract of their obligations may change in
Novation.
Ex. A is indebted to B & B to C. By mutual agreement B’s
debt to C & B’s loan to A are cancelled and C accepts A as
his debtor. Thus there is novation involving change of
parties.
2) Alteration – Alteration means change in one or more of
the material terms of a contract. A material alteration is one
which alters the legal effect of the contract e.g. – Change in
amount of money to be paid or a change in the rate of
interest etc.
3) Rescission - A contract may be discharged before the
date of performance by agreement between the parties
to the effect that is shall no longer bind them. Such an
agreement is called ‘Rescission’ or ‘Cancellation of
contract. And the consideration being abandonment of
their right by the parties.
• Ex : A promises to deliver certain goods to B an a
certain date before the date of performance, A & B
mutually agree that the contract will not be performed.
The contract stands discharged by rescission.
• Non-performance by the parties for a long period without
complaint, it amounts to an implied rescission.
4).Remission – may be defined ‘ as the acceptance of a
lesser sum or a lessor fulfillment of the promise made.
• Ex : If the promise agrees to accept Rs. 2000 in full
satisfaction of a claim of Rs. 5,000 the promise is
enforceable and the promise cannot bring a suit of
recovery in future.
5).Waiver – means the deliberate abandonment or giving up
of a right which a party is entitled to under a contract, where
upon the other party to the contract is released from his
obligations.
3. Discharge by subsequent or Supervening Impossibility
or Illegality :Sec. 56 ‘An agreement to do an act impossible
in itself is void.’
• ‘A contract to do an act which after the contract is made,
becomes impossible, or by reason of some event which the
promisor could not prevent, becomes void when the act
becomes impossible or unlawful.
Ex; A contracts to marry B being already married to C
(which is illegal). A. must make compensation to B for non-
performance of his promise.
Ex : A music hall was agreed to be let out, for a series of
concerts. The hall was destroyed by fire before the date of
first concert. The plaintiff sued the defended for damages
for beach of contract. It was held by the court that the
contract has become void and the defendant was not liable.
•
• Ex: Similarly, if a factory promises on which a machinery is
to be installed are destroyed by fire, or a ship under a
charter party is seized by a foreign government, the contract
is discharged.
• Cases not covered by supervising Impossibility.
1) Difficulty of Performance – cannot be excused from
performance.
• Ex- X contracted with y to send certain goods from Bombay
to Delhi in September, in August transport companies went
on a strike and transport was available at very high rates. It
was held, that the increase in freight rates did not excuse
performance.
2) ‘Impossibility due to the default of a third person.
Ex: A, a wholesaler, enter into a contract with B for the sale
of certain goods ‘to be produced by Z’ a manufacturers of
those goods. Z fails to manufacturers those goods. A in
liable to B for damages.
3) Strikes & Lock-out – A strike by the workman or a lock-out
by the employer also does not excuse performance because
the former is manageable and the latter is self-induced.
4) Discharge by Lapse of Time ;
• Law of Limitation lays down that in case of breach of a
contract legal action should be taken within a specified period,
called the period of limitation, otherwise the promiser is debarred
from instituting a suit in a court of law and contract stands
discharged.
5) Discharge by operation law -
• A contract terminates by operations of law in the following cases :
• (a) By death of the promisor.
• (b) Insolvency – by court order – for liabilities prior to his
adjustication.
• (c) Merger – an inferior right contract merges. Into a superior right
contract.
• Ex : Contract of tenency - purchase – Ownership rights.
6) Discharge by Breach of Contract.
• Breach of contract by a party is also a method of
discharge of a contract, because ‘breach’ also brings to
an end the obligations created by a contract on the part
of each of the parties.

i.e. party at fault can sue the other party for damages, but
the contract as such stands terminated.

Contract Act
Various remedies for breach of Contract
• Where there is breach of contract, the injured party
becomes entitled to the following remedies :
• Rescission of the contract
• Suit for Damages
• Suit for quantum merit.
• Suit for specific performance of contract.
• Suit for injunction
1) Rescission – Where there is breach of contract by one
party, the other party may rescinded the contract and
need not perform his part of obligations under the contract
if he decides not to take any legal action against the guilty
party.
• (But if the aggrieved party wants to sue the guilty party
for damages, then he has to file suit for rescission of
contract and side by side claim damages before the court.
2) Suit for Damages – Damages are monetary
compensation allowed to the injured party for the loss
suffered by him as a result of breach of contract.
• Damages are categories according to their applicability in
a particular case-
1) Ordinary damages – when a contract has been broken
the injured party as a rule, can always recover from the
guilty party ordinary damages.
These damages arise naturally and directly in the usual
course of things, it means these damages are direct result
of breach of contract.
• Ex : Money to be delivered on a specified date, not
delivered, resulted in loss to the other party for non
payment of his debt.
• 2) Special Damages – are those which arise on
account of special or unusual circumstances affecting the
plaintiff (aggrieved party). These damages are remote,
special damages cannot be claimed as a matter of right,
these can only be allowed by the court in case of special
circumstances.
• Ex : A contract with B to supply 100 tons of iron, A
was supposed to get this iron from C, C was specifically
told by A that he is entering into a contract with B for
supply of iron. C fails to provides A with the iron, C is
bound to pay special damages for the loss of profit which
could have been earned by A.
• 3) Exemplary or Vindictive Damages – These
damaged are awarded by the court with a view to punish
the guilty party for the breach and not by way of
compensation for the loss suffered by the aggrieved party.
•
• Ex. (a) Breach of Contract to marry.
• (b) Dishonour of cheque by a Baker when there are
sufficient funds to the credit of the customer.
4) Nominal Damages – are those which are awarded only
for name sake. They are neither awarded as
compensation not as a punishment. (small amount).
• Ex : In a sale of goods, if the contract price and the
market price is almost the same at the date of breach of
contract.
5) Suit for Quantum Merit – This remedy is available to the
injured party against the guilty by filing a suit of Quantum
Merit, which means ‘as much as in earned’.

• Ex: A engages B (a contractor), to build a 2 storied house,

after a part is constructed, A prevents B from working any
more, B the contractor is entitled to get reasonable
compensation for the work done in addition to the
damages for breach of Contract.
6) Suit for Specific Performance -
• Specific performance means actual carrying out of the
contract as agreed.
• The aggrieved party may file a suit for specific
performance, for getting a decree by the court whereby
directing the defendant to actually perform the promise
that has been made under the contract.
• * (Such a suit may be filed either or in addition to a suit for
damages).
7) Suit for Injunction- ‘Injunction’ is an order of a court
restraining a person form doing a particular act.
It is a mode of securing the Specific Performance of the
negative terms of the contract i.e. where he is doing
something which he has promised not to do.
• Ex : A agreed to take the whole supply of some goods
from a particular supplier and no one else (negative
promise). He was therefore restrained by an injunction
from buying the supply of goods from any other suppliers.