1615457034395_business law.ppt

UNIT - 1
Law of Contract – Agreement – Offer –
Acceptance – Consideration – Capacity of
Contract – Contingent Contract – Quasi
Contract – Performance – Discharge –
Remedies to breach of Contract.

LAW
According to Salmond, “Law is those
principles applied by the state in the
administration of justice”.
The term ‘Law’ denotes the principles and
rules that govern and regulate social
conduct and observance of which can be
enforced through courts.

Business Law
Business law refers to those rules and
regulation which govern the formation and
execution of business deals made by various
people in the society.

CONTRACT
A contract is an agreement, made between
two or more parties which the law will enforce.
Section 2(h) of the Act defines a contract as “an
agreement enforceable by law”.

ELEMENTS OF CONTRACT
1. an agreement and
2. its enforceability by law

AGREEMENT
Section 2(e) defines an agreement as
“every promise and every set of promises
forming consideration for each other”.

AGREEMENT
Agreement = Offer +Acceptance

CONCLUSION
All contracts are agreements but all
agreements are not contracts
Contract = Agreement + Enforceability by law
Agreement = Offer + Acceptance

Consensus ad idem
The essence of an agreement is the
meeting of the minds of the parties in full
and final agreement.
This means that the parties to the
agreement must have agreed about the
subject matter of the agreement in the
same sense and at the same time.

Example
A, owns two horses named Rajhans
and hansraj, is selling horse Rajhans to B.
B thinks he is purchasing horse Hansraj.
There is no consensus ad idem and
consequently no contract.

obligation
An agreement, to become a contract, must
give rise to legal obligation or duty.
Example:
A agrees to sell his car to B for Rs.50,
000. 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.
50,000 to A. This agreement is a contract.

ESSENTIALS ELEMENTS OF A VALID
CONTRACT
1. Offer and acceptance
2. Intention to create legal relationship
3. Lawful Consideration
4. Capacity of the parties
5. Free and genuine consent
6. Lawful object
7. Agreement not declared void.
8. Certainty & Possibility of performance
9. Legal formalities

1. Offer and acceptance
• There must be two parties to an agreement, i.e., 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 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.

3. Lawful Consideration
“Contract without consideration is void”
It means “something in return”. Every contract must be
supported by consideration. The agreement is legally
enforceable only when both the parties give something and
get something in return. A promise to do something,
getting nothing in return, is usually not enforceable by law.
Example:
‘A’ agrees to sell his house to ‘B’ for Rs.50,000. Here for
‘A’s promise, the consideration is the price and for ‘B’ the
consideration is the house.

4. Capacity
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).
For example, a contract by a minor, lunatic,
idiot or drunkard is void.

5. Free Consent
It is essential to the creation of every contract
that there must be a free and genuine consent
of the parties to the agreements. The consent
of the parties is said to be free when they are of
the same mind on all the material terms of the
contract.

6. The object of the contract must be
lawful
The object of the agreement must be lawful. In
other words, it 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.
Example:
‘A’ promises to pay Rs.500/- for letting ‘B’s
house for running a brothel. The object is illegal.
Hence, the contract is void.

7. Agreement not declared void
The agreement must not have been
expressly declared void by law in force in
the country.
A

8. Certainty & 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 to sell to ‘B’ “a 100 tons of
oil”. There is nothing whatever to show what kind
of oil was intended. The agreement is void for
uncertainty.

9. Legal Formalities
A contract may be made by words 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 written.

CLASSIFICATION or TYPES OF CONTRACTS
1. Classification according to Validity: Valid &
Invalid
2. Classification according to formation
3. Classification on the basis of performance

1. Classification according to Validity: Valid &
Invalid
a. Voidable contract
b. Void agreement
c. Void contract
d. Illegal agreement
e. unenforceable contract
2. Classification according to formation
b. Express contract
c. Implied Contract
d. Quasi Contract

3. Classification on the basis of performance
a. Executed Contract
b. Executory Contract
c. Unilateral or one sided contract
d. Bilateral contract

a. Void Contract
A contract which ceases to be enforceable by law
becomes void when it ceases to be enforceable
[Sec. (2j)]. It is valid when it is entered into, but
something happens subsequent to the formation
of the contract which makes it void.
e.g: a contract to import goods from a foreign
country.

b. Void Agreement
An agreement not enforceable by law is said to
be void [Sec. 2 (g)]. A void agreement does not
create any legal rights or obligations.
Example: An agreement with a minor or an
agreement without consideration.

c. Voidable Contract
An agreement which is enforceable by law at the
option of one or more of the parties thereto, but
not at the option of the other or others, is a
voidable contract [Sec. 2 (i)]. This happens when
the essential element of free consent in a contract
is missing.
Example: A promises to sell his car to B for Rs.
2,000. His consent is obtained by use of force.
The contract is voidable at the option of A. He
may avoid the contract.

d. Illegal agreement.
A contract is illegal if it involves the transgression
of some rules of basic public policy and is
criminal in nature and where it is based on
immoral. All illegal agreements are void but all
void agreements or contracts are not necessarily
illegal.
Example: B borrows Rs.5,000 from A and enters
into a contract with an alien to import prohibited
goods. A knows of the purpose of the loan. The
transaction between B and A is collateral to the
main agreement. It is illegal since the main
agreement is illegal.

e.unenforceable Contract
An unenforceable contract is one which cannot
be enforced in the court of law because of some
technical defects such as absence of writing or
where the remedy has been barred by lapse of
time.

a. Express Contract
If the terms of a contract are expressly agreed
upon (whether by words spoken or written) at the
time of the formation of the contract, the contract
is said to be an express contract.
Where the offer or acceptance of any promise is
made in words, the promise is said to be express
(Sec. 9). An express promise results in an
express contract.

b. Implied Contract
An implied contract is one which is inferred from
the acts or conduct of the parties or course of
dealings between them.
It is not the result of any express promise or
promises by the parties but of their particular
acts. It may also result from a continuing course
of the parties. Where the proposal or acceptance
of any promise is made otherwise than in words
the promise is said to be implied (Sec. 9). An
implied promise results in an implied contract.

For example: ‘A’ enters a hotel, takes coffee and
pays the bill. Here, offer and acceptance are
inferred from the conduct of the parties. In the
same way, where a person enters a public bus, or
obtains a ticket from an automatic teller machine,
there is an implied contract.

c. Quasi Contract
A quasi-contract is not a contract at all. A contract
is intentionally entered into by the parties. A
quasi-contract, on the other hand is created by
law. It resembles a contract in that a legal
obligation is imposed on a party who is required
to perform it.
For example 1: ‘A’ pays the amount by mistake to
‘B’. ‘B’ should refund the amount to ‘A’.
For example 2: T, a tradesman, leaves goods at
C’s house by mistake. C treats the goods as his
own. C is bound to pay T for the goods.

a. Unilateral or One-sided Contract
A unilateral contract is one in which only one
party has to fulfill his obligation at the time of the
formation of the contract, the other party having
fulfilled his obligation at the time of the contract or
before the contract come into existence.
For example, ‘A’ permits a railway coolie to carry
his luggage and place it in a carriage. A contract
comes into existence as soon as the luggage is
placed in the carriage. But by that time the coolie
has already performed his obligation. Now only
‘A’ has to fulfill his obligation, i.e., pay the
reasonable charges to the coolie.

b. Bilateral Contract
A bilateral contract is one in which the obligations
on the part of both the parties to the contract are
outstanding at the time of the formation of the
contract. In this sense, bilateral contracts are
similar to executory contracts.
For example, X agrees to sell 100 bags of paddy
after 30 days to Y and Y agrees to pay for them
after their delivery.

a. Executed Contract
‘Executed’ means that which is done. An executed
contract is one which both the parties have performed
their respective obligations.
Example 1: A sells a TV set to B for Rs.20,000. B pays
the price and A hands over TV set to B.
Example 2: A agrees to paint a picture for B for Rs. 100.
when A paints the picture and B pays the price, i.e.,
when both the parties perform their obligations, the
contract is said to be executed.

b. Executory contract
‘Executory’ means that which remains to be
carried into effect.
Example 1: A promise to pay Rs.5 to B, in
consideration of B’s promise to deliver a book.
Both the promises are outstanding. This is called
executory contract.

FORMATION OF A CONTRACT
1. Offer and acceptance (Sec.2-9)
2. Consideration (Sec.2(d),23-25, 185)
3. Competency to contract (Sec.10-12)
4. Free consent (Sec. 15-18)
5. Lawful object (Sec.23-24)

Offer / Proposal
An offer is a proposal by one party to another to
enter into a legally binding agreement with him.
The person making the offer is known as the
offeror, proposer or promiser and the person to
whom it is made is called the offeree or promisee.
Example: A offers to sell his motor cycle to B for
Rs. 3,000. B agrees to pay A Rs.3,000 for the
motor cycle. Here A is called the offeror or
promisor and B the offeree or promisee.

LEGAL RULES AS TO OFFER
1. Offer must be such as in law is capable
of being accepted and giving rise to legal
relationship.
2. Terms of offer must be definite,
unambiguous and certain and not loose
and vague.
3. An offer may be distinguished from:
a. A declaration of intention and
announcement.

b. An invitation to make an offer or do
business.
4. Offer must be communicated.
5. Offer must be made with a view to
obtaining the assent.
6. Offer should not contain a term the non-
compliance of which may be assumed to
amount to acceptance.

7. A statement of price is not an offer.

CROSS OFFERS
When two parties make identical offers to
each other, in ignorance of each others
offer, the offers are cross offers.

Modes of making an offer (or) Different
kinds of Offer
1. Express offer
2. Implied offer
3. Specific offer
4. General offer

1. Express offer: It means an offer made by
words (whether written or oral). The written offer
can be made by letters telegrams, telex
messages, advertisements, etc. The oral offer
can be made either in person or over telephone.
2. Implied offer: An offer made without using
words is called implied offer. It is derived from
the conduct of the parties. However, silence of a
party can, in no case, amounts to offer by
conduct.

3. Specific offer: An offer addressed to a
particular person with an intention of entering into
a contract only with that particular person, is
called specific offer. A specific offer can be
accepted only by that particular person.
4. General offer: The offer made to the public at
large is a general offer. In the case of general
offer any one of the public can accept it. A
contract will arise only with that particular person
who accepted the offer.

Acceptance [Sec. 2(b)]
Acceptance is an expression 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.
Example: A offers to sell his horse to B for
Rs.500. B accepts the offer to purchase the horse
for Rs.500. This is acceptance.

Essentials or Legal rules of Valid Acceptance
 Acceptance must be absolute and
unconditional.
It must be communicated to the offeror.
 it must be made according to the mode
prescribed or usual and reasonable mode.
 it must be given within a reasonable time.
 it cannot precede an offer.

It must show an intention on the part of the
acceptor to fulfill terms of the promise.
It must be given by the party or parties to whom
the offer is made.
It must be given before the offer lapses or
before the offer is withdrawn.
It cannot be implied from silence.

Consideration
One of the essential elements for a valid contract
is the presence of lawful consideration in the
agreement. In other words, an agreement
without consideration is null and void. Such an
agreement is not enforceable by law. According
to Section 25, an agreement made without
consideration is void.
Example: A agrees to sell his house to B for
Rs.50,000. Here for A’s promise, the
consideration is the price and for B the
consideration is the house.

Legal Rules regarding Consideration
Consideration must move at the desire of the
promiser.
Consideration may move either from the
promisee or any other person.
Consideration need not be adequate.
Consideration may be an act, abstinence or
forbearance or a return promise.
It may be past, present, or future.

Legal Rules regarding Consideration
Consideration must be real and not illusory.
It must be something which the promiser is not
already bound.
It must not be illegal, immoral, or opposed to
public policy.

Stranger to contract
 It is a general rule of law that only parties
to a contract may sue and be sued on that
contract. This rule is known as doctrine of
“privity of contract”.
 There are two consequences of the
doctrine of privity of contract:
1. A person who is not a party to a
contract cannot sue upon it even though
the contract is for his benefit and he
provided consideration.

 A contract cannot confer rights or impose
obligation arising under it on any person
other than the parties to it. Thus, if there is
a contract between A and B, C cannot
enforce it.

Stranger to contract (Exceptions)
The following are the exceptions to the
rule that a stranger to a contract cannot
sue:
1. A trust or charge.
2. marriage settlement, partition or other
family arrangements.
3. Acknowledgement or estoppel
4. Assignment of a contract.

5. Contracts entered into through an
agent.

A contract without consideration
is void (Exceptions)
A general rule is ex nudo pacto non oritur
actio i.e an agreement made without
consideration is void.
In such cases the agreements are
enforceable even though they made
without consideration. These are
1. Love and affection
2. Compensation for voluntary services.

A contract without consideration
is void
3. Promise to pay a time- barred debt.
4. Completed gift.
5. Agency.
6. Charitable subscription.

Competency / Capacity to Contract
The parties who enter into a contract must have
the capacity to do so. ‘Capacity’ here means
competence of the parties to enter into a valid
contract. According to Sec.10, an agreement
becomes a contract if it is entered into between
the parties who are competent to contract.
 Minors,
 Persons of unsound mind, and
 Persons disqualified by any law to which
they are subject

Minors
According to sec 3 of the Indian majority
act, 1875, a minor is a person who has not
completed eighteen years of age.
Minor’s agreements:
1. An agreement with or by a minor is void
and inoperative ab initio.
2. He can be a promisee or a beneficiary.
3. His agreement cannot ratified by him

Minors
On attaining the age of majority
4. If he has received any benefit under a
void agreement, he cannot asked to
compensate or pay for it.
5. He can always plead minority.
6. There can be no specific performance
of the agreements entered into by him as
they are void ab initio.

Minors
7. He cannot enter into a contract of
partnership.
8. He cannot be adjusted insolvent.
9. He is liable for “necessaries” supplied or
necessary services rendered to him or
anyone whom he is legally bound to
support.
10. He can be an agent.

Minors
11. His parents/guardian are / is not liable
for the contract entered into by him.
12. A minor is liable in tort.( a civil wrong).

Persons of unsound mind
One of the essential conditions of
competency of parties to a contract is that
they should be of sound mind.
“A person who is usually of sound mind,
but occasionally of unsound mind, may not
make a contract when he is unsound
mind”.
A person who is usually of unsound
mind,but occasionally of sound mind may

Persons of unsound mind
Make a contract when he is of sound
mind.
For e.g: A patient in a lunatic asylum, who
is at intervals of sound mind, may not
make a contract during those intervals.

Other persons
Alien enemies
Foreign sovereigns
Corporations
Insolvents
convicts

Free Consent
Consent (Sec.13). “Two or more persons are
said to consent when they agree upon the same
thing in the same sense.”
Free Consent (Sec.14). Consent is said to be
free when it is not caused by:
(1) Coercion [Sec.15]
(2) Fraud [Sec. 16]
(3) Undue influence [Sec. 17]
(4) Misrepresentation [Sec. 18]
(5) Mistake [Sec. 20,21 and 22]

Free Consent
Example: A is forced to sign a promissory note at
the point of pistol. In this case A knows he is
signing but his consent is not free. The contract
in this case is voidable at his option.

(1) Coercion
According to the Indian Contract Act, coercion is
the committing or threatening to commit any act
forbidden by the Indian Penal Code. It also
includes the unlawful detaining or threatening to
detain any property, to the prejudice of any
person whatsoever.
The intention of the aforesaid act is to force the
other party to enter into an agreement. For
example, ‘A’ compels ‘B’ to sell his house a half
the market price at the point of a gun. ‘A’ has
employed coercion.

(2) Undue Influence
Sometimes a party is compelled to enter into an
agreement against his will as a result of unfair
persuasion by the other party. This happens
when a special kind of relationship exists
between the parties such that one party is in a
position to exercise undue influence over the
other.

(3) Fraud
Section 17 of the Indian Contract Act states that
‘fraud’ means and includes following acts
committed by a party to a contract, or with his
connivance, or by his agent, with intent to deceive
another party thereto or his agent, or to induce
him to enter into the contract.

(4) Misrepresentation
Misrepresentation is a false statement which the
person making it honestly believes to be true or
which he does not know to be false. It means
representation of a statement of fact which is not
true. Based upon the intention of the
misrepresentation it may be classified into (i)
innocent misrepresentation (ii) willful
misrepresentation (fraud), (iii) negligent
misrepresentation, it is voidable at the option of
that party.

(5) Mistake
Mistake may be defined as an erroneous belief
about something. It may be a mistake of law or a
mistake of fact.
Example: A agrees to buy from B a certain
house. It turns out that the house had been
destroyed by fire before the time of the bargain
though neither party was aware of the fact. The
agreement is void as there is a mistake on the
part of the parties about the existence of the
subject matter.

Questions
1. Distinction between Void Agreement and
Voidable Contract.
2. Differences between void agreement and
illegal agreement.
3. Difference between coercion and undue
influence.
4. Distinction between Misrepresentation and
Fraud.

Lawful Object
The last requirement for formation of a valid
contract is that the object of the contract must be
lawful. Object means the purpose of the contract.
If the object of a contract is against the law of the
land, the contract is unlawful or simply void.

Contingent Contract
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 (Sec.31).
Where, for example, goods are sent on approval,
the contract is a contingent contract depending
on the act of the buyer to accept or reject the
goods.
Example: A contracts to pay Rs.10,000 if B’s
house is burnt. This is a contingent contract.

Characteristics Contingent Contract
1. Its performance depends upon the happening
or non-happening in future of some event. It is
this dependence on a future event which
distinguishes a contingent contract from other
contracts.
2. The event must be uncertain. If the event is
bound to happen, and the contract has got to
be performed in any case it is not a contingent
contract.
3. The event must be collateral, i.e., incidental to
the contract.

Rules regarding contingent
contracts
 THE HAPPENING OF A FUTURE UNCERTAIN EVENT
1. Contingent contracts depends on the
happening of an uncertain future event cannot
be enforced until the event has happened. If the
event becomes impossible, such contracts
become void.
 For eg: A contracts to pay B a sum of money
when B marries to C. C dies without being
married to B

contracts
 THE NON HAPPENING OF AN UNCERTAIN FUTURE EVENT
2. When a contingent contract is to be
performed if a particular event does not
happen, its performance can be enforced
when the happening of that event
becomes impossible.
For example: A agrees to pay B a sum of
money if certain ship does not return. The
ship is sunk. The contract can be enforced
when the ship sinks.

contracts
 WHEN EVENT TO BE DEEMED IMPOSSIBLE
3. If a contract is contingent upon how a
person will act at an unspecified time, the
event shall be considered to become
impossible when such person does
anything which renders it impossible that
he should so act within any definite time,
or otherwise than under further
contingencies.
For example:

 A agrees to pay B a sum of money if he marries
C. But c marries D. The marriage of B to C must
now be considered impossible although it is
possible that D may die and that C may
afterward marry B.
 THE HAPPENING OF AN EVENT WITHIN FIXED TIME
 4. Contingent contracts to do or not to do
anything, if a specified uncertain event happens
within a fixed time, become void if the event

 does not happen or its happening becomes
impossible before the expiry of that time.
 For example: A promise to pay B a sum of
money if a certain ship returns within a year. The
contract become enforced if the ship returns
within the year, and becomes void if the ship is
burnt within the year.

 IMPOSSIBLE EVENTS
 5. contingent agreement to do or not to do
anything, if an impossible event happens, are
void whether or not the fact is known to the
parties.
 For eg: A agrees to pay B Rs1,000 if two straight
lines should enclose a space. The agreement is
void
 B. A agrees to pay B Rs1000 if B will marry A’s
daughter, C. C was dead at the time of the
agreement, it is void.

Performance of contract
Performance of the contract takes place
when the parties to the contract fulfil their
obligations arising under the contract
within the time and in the manner
prescribed.

Offer to perform
Sometimes it happens that the promisor
offers to perform his obligation under the
contract at the proper time and place but
the promisee does not accept the
performance. This is known as “attempted
performance” or “tender”.

Requisites of a valid tender
 1. It must be unconditional.
 Example: D, a debtor offers to pay C, his
creditor, the amount due to him on the condition
that C sells to him certain shares at cost. This is
not a valid tender.
 2. It must be of the whole quantity contracted for
or of the whole obligation.

Requisites of a valid tender
.
3. It must be by a person who is in a position, and
is willing to perform the promise.
4. It must be made at the proper time and place.
5. It must be made to the proper person.
6. It may be made to one of the several joint
promisees.
7. In case of tender of goods, it must give a
reasonable opportunity to the promisee for
inspection of goods.

Contracts Which need not be
performed
1. When its performance becomes
impossible.
2. When the parties to it agree to
substitute a new contract for it or to
rescind or alter it.
3. when the person at whose option it is
voidable, rescinds it.
4. when the promisee neglects or refuses
to afford the promisor reasonable

facilities for the performance of his promise.
5. When it is illegal

Reciprocal promises
Promises which form the consideration or
part of the consideration for each other are
called “reciprocal promises”.
1. mutual and independent.
2. conditional and dependent
3. mutual and concurrent.

Rules regarding performance of
reciprocal promises
1. Simultaneous performance of reciprocal
promises.
e.g. A and B contract that A shall deliver certain
goods to B to be paid by B on delivery. A need
not deliver the goods, unless B is ready and
willing to pay for the goods on delivery. B need
not pay for the goods unless A is ready and
willing to deliver them on payment.

2. Order of performance of reciprocal promises
e. g. A and B contract that A shall build a house for
B at a fixed price. A’s promise to build the house
must be performed before B’s promise to pay for
it.

3. Effect of one party preventing another from
performing promise. When a contract contains
reciprocal promises , it may happen that one
party to the contract prevents the other from
performing his promise.
e.g. A and B contract that B shall execute certain
work for A for Rs. 1000. B is ready and willing to
execute the work accordingly but A prevents him
from doing so.

4. Reciprocal promise to do things legal and also
other things illegal.

Assignment of Contracts
Assignment means transfer. When a party to a
contract transfer his right, title and interest in the
contract to another person or persons, he is said
to assign the contract. Assignment of a contract
can take place by (i) operation of law or (ii) an act
of parties. The example of assignment by
operation of law is by insolvency or death of the
party to the contract.

Act of the parties
 Assignment is said to take place by an act of the
parties when they themselves make the
assignment.
 Assignment of contractual obligations:
 1. contractual obligations involving personal skill
or ability cannot be assigned.
 2. a promisor cannot assign his liabilities or
obligations under a contract.

Assignment of contractual rights
1. The rights and benefits under a contract not
involving personal skill may be assigned.
2. An actionable claim can always be assigned but
the assignment to be complete and effectual
must be effected by an instrument in writing.

2. Operation of Law
 Assignment by operation of law takes place by
intervention of law. This takes place in the
following two cases.
 A. Death
 B. Insolvency.

Discharge of contract
Discharge of contract means termination of the
contractual relationship between the parties. A
contract is said to be discharged when it ceases to
operate, i.e., when the rights and obligations created
by it come to an end. A contract may be discharged
1. By performance
2. By agreement or consent
3. By impossibilities
4. By lapse of time
5. By operation of law
6. By breach of contract

1. Discharge by Performance
Discharge by performance takes place when the
parties to a contract fulfil their obligations arising
under the contract within the time and in the manner
prescribed. In such a case, the parties are
discharged and the contract comes to an end. But if
only one party performs the promise, he alone is
discharged. Such a party gets a right of action
against the other party who is guilty of breach.
1. Actual performance
2. Attempted performance or tender.

2. Discharge by Agreement or Consent
The rights and obligations created by an agreement
can be discharged without their performance by
means of another agreement between the parties
which provides for the extinguishment of the earlier
rights and obligations. The parties may agree to
terminate the existence of the contract by any of the
following ways.
1. Novation
2. Rescission
3. Alteration
4. Remission
5. Waiver

3. Discharge by Impossibility or
Performance
If an agreement contains an undertaking to perform
an impossibility, is void ab initio. According to
Sec.56, impossibility of performance may fall into
either of the following categories.
 Impossibility existing at the time of agreement.
 Impossibility arising subsequent to the formation
of contract.

4. Discharge by Lapse of time
The Limitation Act, 1963 provides that a contract
should be performed within a specified period. Such
a period is called period of limitation. If the contract
is not performed, and if no legal action is taken by
the promise within the period of limitation, he is
deprived of his remedy at law. In otherwords, the
contract in such a case is terminated.

5. Discharge by Operation of Law
A contract may be discharged independently of the
wishes of the parties, (i.e.,) by operation of law. This
includes discharge
 By death
 By Merger
 By insolvency
 By unauthorized alteration of the terms of a
written agreement

6. Discharge by Breach of Contract
Breach of contract means, breaking of the obligation
which a contract imposes. It occurs when a party to
the contract without lawful excuse does not fulfil his
contractual obligations or by his own act makes it
impossible that he should perform his obligation
under it. It confers a right of action for damages on
the injured party.
1. Actual breach of contract
2. Anticipatory or constructive breach of contract

Actual breach of contract
It may take place:
1. At the time when the performance is due.
e. g. A agrees to deliver to B 5 bags of wheat on
1st january. He does not deliver the wheat on
that day. There is a breach of contract.
2. During the performance of the contract
a. Express repudiation
b. Implied repudiation

Anticipatory breach of contract
 It occurs when a party to an executory contract
declares his intention of not performing the
contract before the performance is due.
 E. g: A undertakes to supply certain goods to B
on 1st january. Before this date, he informs B
that he is not going to supply the goods . This is
anticipatory breach of contract by express
repudiation

Breach of Contract
A breach of contract occurs where a party to a contract
fails to perform, precisely and exactly, his obligations
under the contract. This can take various forms for
example, the failure to supply goods or perform a
service as agreed.
In other word, Violation of any of the agreed-upon terms
and conditions of a binding contract. This breach could
be anything from a late payment to a more serious
violation, such as failure to deliver a promised asset. A
contract is binding and will hold weight if taken to court;
however, proof of the violation is imperative.

Remedies for Breach of Contract
A contract gives rise to correlative rights and obligations.
A right would be of no value if there were no remedy to
enforce that right in the Law Court in the event of its
infringement or breach of contract. A remedy is the
means given by law for the enforcement of a right.
When a contract is broken, the injured party (ie., the
party who is not in breach) has one or more of the
following remedies:
1. Rescission of the contract
2. Suit for damages
3. Suit upon quantum meruit
4. Suit for specific performance of the contract
5. Suit for injunction

1. Rescission of the contract
When a contract is broken by one party, the other
party may sue to treat the contract as rescinded and
refuse further performance. In such a case, he is
absolved of all his obligations under the contract.
Example: A promises B to supply 10 bags of wheat
on a certain day. B agrees to pay the price after the
receipt of the goods. A does not supply the goods.
B is discharged from liability to pay the price.

2. Suit for damages
The word damages means compensation in money
which the party who suffers by a breach of contract
is entitled to receive from the party who has broken
the contract. The fundamental principle underlying
damages is not punishment but compensation.

Damages Arising naturally
When a contract has been broken, the injured
party can recover from the other party such
damages as naturally and directly arose in the
usual course of things from the breach.
 Example: A Contracts to sell and deliver 50
quintals of farm wheat to B at Rs. 475 per
quintal, the price to be paid at the time of the
delivery. The price of the wheat rises to Rs. 500
per quintal and A refuses to sell the wheat. B
can claim damages at the rate of Rs. 25 per
quintal

Damages in contemplation of the
parties – Special damages
 Damages other than those arising from the
breach of a contract may be recovered if such
damages may reasonably be supposed to have
been in the contemplation of both the parties as
the probable result of the breach of contract.
Such damages known as special damages.
Cannot be claimed as a matter of right.

Vindictive or exemplary damages
 Vindictive or exemplary damages have no place
in the law of contract because they are punitive
in nature. But in case of ,
 A. Breach of a promise to marry.
 B. Dishonour of a cheque by a banker wrongfully
when he possesses sufficient funds to the credit
of the customer, the court may award exemplary
damages.

Nominal damages
Where the injured party has not in fact
suffered any loss by reason of the breach
of contract, the damages recoverable by
him are nominal. i.e. Very small, for
example a rupee.

Damages for loss of reputation
Damages for loss of reputation in case of
breach of contract are not recoverable.

3. Suit upon quantum meruit
“Quantum Meruit” literally means “as much as
earned” or “as much as merited”. When a person has
done some work under a contract, and the other
party repudiates the contract, or some event
happens which makes the further performance of the
contract impossible, then the party who has
performed the work can claim remuneration for the
work he has already done.

4. Suit for specific performance of
the contract
In certain cases of breach of a contract, damages
are not an adequate remedy. The court may, in such
cases, direct the party in breach to carry out his
promise according to the terms of the contract.

5. Suit for Injunction
Where a party is in breach of a negative term of
contract (i.e., where he is doing something which he
promised not to do) the court may, by issuing an
order, restrain him from doing what he promised not
to do. Such an order of the court is known as an
injunction”.

Quasi-Contracts
A quasi-contract has been defined as ‘a situation in which
law imposes upon one person on grounds of natural
justice, an obligation similar to that which arises from a
true contract although no contract, express or implied has
in fact been entered into by them”. A contract is
intentionally entered into by the parties. A quasi-contract,
on the other hand is created by law. It resembles a
contract in that a legal obligation is imposed on a party
who is required to perform it.
For example 1: ‘A’ pays the amount by mistake to ‘B’. ‘B’
should refund the amount to ‘A’.
For example 2: ‘A’ delivers goods to ‘B’ mistaking him to
be ‘C’. ‘B’ must reject goods or pay for them if he accepts
delivery of the goods, as law imposes an obligation upon
him to pay.

Kinds of quasi contract
Supply of necessaries
Payment by an interested person
Obligation to pay for non gratuitous acts
Responsibility of finder of goods
Mistake or Coercion

Quantum meruit
“Quantum Meruit” literally means “as much as
earned” or “as much as merited”. When a
person has done some work under a contract,
and the other party repudiates the contract, or
some event happens which makes the further
performance of the contract impossible, then the
party who has performed the work can claim
remuneration for the work he has already done.

The claim for quantum meruit arises in the
following cases.
1. When an agreement is discovered to be void.
2. When something is done without any intention
to do so gratuitiously.
3. When there is an express or implied contract to
render services but there is no agreement as to
remuneration.
4. When the contract is divisible.

5. When the completion of the contract
has been prevented by the act of other
party to the contract.
6.When an indivisible contract is
completely performed but badly.

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