Contract Act 1872 - Business Law

The Contract Act 1872
- Business Law

Index
 Definitions
 Classifications of Contracts
 Essential Elements of a Valid Contract
 Discharge of a Contract
 Contingent contracts

Definitions
 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 or OFFER
 A proposal, when accepted, becomes a PROMISE of the
offerer
 When a person to whom the proposal is made, signifies his
assent thereto, the PROPOSAL is said to be ACCEPTED
 The person making the proposal is called the
"PROMISOR", and the person accepting the proposal is
called "PROMISEE”

Definitions
 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 a CONSIDERATION for the promise;
 Every promise and every set of promises, forming the
consideration for each other, is an AGREEMENT;
 Promises which form the consideration or part of the
consideration for each other are called RECIPROCAL
PROMISES

Definitions
 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 a
CONSIDERATION for the promise;
 Every promise and every set of promises, forming
the consideration for each other, is an
AGREEMENT;
PAST
Consideration FUTURE
Consideration
PRESENT
Consideration

Definitions
 An agreement enforceable by law is a
CONTRACT
 Therefore CONTRACT = Agreement +
Enforceability by Law.
 AGREEMENT = Offer + Acceptance +
Enforceability by Law

Classifications of Contracts - An agreement becomes a
contract when all the essential elements of a contract are present. In such case such agreement
becomes a contract. If any of the essential elements are missing then such contact is voidable, void,
illegal or unenforceable
 BASED ON THE VALIDITY:
.
 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”.
 VOID AGREEMENT: An agreement not enforceable by law is said to be void.” A void agreement
does not create any legal right or obligation. Such agreement is void-ab-initio from the beginning itself.
 VOID CONTRACT: A contract which ceases to be enforceable by law becomes void when it ceases to
be enforceable.” In this case when the contract was entered into, may be valid and binding on the
parties as per law, but subsequently it has become void. E.g., in the case of import contract, the
agreement is enforceable, but if subsequently war brakes out then the agreement becomes void
contract.
 ILLEGAL AGREEMENTS: an illegal agreement is one, which transgresses (against) some basic rule of
Public Policy or is of criminal in nature or is immoral. ALL ILLEGAL AGREEMENT IS VOID, BUT ALL
VOID AGREEMENTS ARE NOT ILLEGAL. An illegal agreement is not only void between the
immediate parties but has its further effect that even the collateral transactions to it become tinted with
illegality. A collateral transaction is one, which is subsidiary, incidental or auxiliary to the principal
contract.
 UNENFORCEABLE CONTRACT: An unenforceable contract is one which cannot be enforced in a
court of law because of some technical defect such as absence of consideration or absence of contract in
writing. The parties to the contract may fulfill their obligations but in the event of breach of contract the
other party cannot enforce it.
E.g., agreement with minor or an agreement without
consideration is void-ab-initio
Ex: Mr. B borrows Rs.5,000 from Mr. A and enters into a
contract with an alien to import prohibited goods. Mr. A
knows of the purposes of agreement. The transaction
between Mr. B and Mr. A is collateral to the main
agreement. It is illegal since the main agreement is illegal.

Classifications of Contracts
 BASED ON FORMATION:
 Express contracts: If the terms of the contract are expressly agreed upon
(whether by words spoken or written) at the time of formation of
contract.
 Implied contracts: in this case the contract comes into existence by the
acts or conducts of the parties -E.g., Getting into a Public bus.
 Quasi contract: strictly speaking quasi contracts are not contracts. A
contract is one, which is entering into with the consent of the parties to
the contract. A quasi contract is one, which is created by law. It is based
on the principle that “a person shall not be allowed to enrich himself
unjustly at the expense of another.”
Case Law: a fire broke out in S’s firm. He called upon the
upton fire brigade to put out the fire which the latter did. Mr. S
firm did not come under the free service zone although he
believes to be so. Held, he was liable to pay for the service
rendered, since the services was rendered on the implied
promise to pay (Upton Rural District Council vs. Powell)
Example –Trader leaves the goods at Mr. A ‘s house by
mistake. Mr. A treats the goods as his own. Mr. A is
bound to pay for the goods.

Classifications of Contracts
 BASED ON PERFORMANCE:
 Executed Contract: A contract in which both the parties to the
contract have completely performed their share of obligation and
nothing remains to be done by either of the parties
 Executory Contract: A contract in which both the parties or any one
party to the contract has to still perform their share of obligation
 Unilateral Contract – where any one party to the contract has to still
perform their share of obligation
 Bilateral Contract - where any both the parties to the contract has to still
perform their share of obligation
Example –Mr. A entered into a contract with the porter
for lifting his 5 bags. Porter agreed and lifts all the 5
bags for Rs. 100. So here the porter has lifted the bags
and Mr. A has paid him.
Example –Mr. A entered into a contract with the porter
for lifting his 5 bags. Porter agreed to lift all the 5 bags
for Rs. 100. So here the porter has not lifted the bags
and Mr. A has not paid him.

Essential Elements of a Valid Contract
All agreements are contracts if they are made with:
 Offer and Acceptance
 Intention to create a legal relationship
 Lawful Consideration
 Capacity of the Parties
 Free Consent
 Lawful Object
 Certainty and Possibility of Performance
 Legal formalities
If any of the above is missing, the contract becomes void.

Essential Elements of a Valid Contract -
Offer and Acceptance
 There must be minimum two parties to an
agreement.
 I.e. one party making the offer (also called as
offerer/proposer/promisor)
and
 the other accepting it (also called as
offeree/proposee/promisee/acceptor)
 The terms of offer must be definite
 Acceptance must be unconditional.
E.g., Mr. A has 3 cars. He asked Mr. B “are you ready
to purchase my car for Rs. 2 lakhs.

Essential Elements of a Valid Contract –
Offer – Meaning:
A person is said to have made a
proposal/offer,
 when he 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

Offer - Kinds of offer:
 Expressed offer - When offer is made by express spoken or written
words
 Implied offer - An offer may also be implied from the conduct of
the parties or the circumstances of the case.
 Specific offer - When an offer is made to a definite person, it is said
to be Specific Offer. It can be accepted by the person to whom it is
made.
 General offer – When an offer is made to the world at large
E.g., When A says to B, “Will you purchase my house
at Chennai for Rs. 3 lakhs. .
E.g., When a transport company runs a bus on a particular
route, there is an implied offer by the transport co. to carry
passengers for a certain fare. The acceptance of the offer
is complete as soon as a passenger boards the bus.
E.g., If Mr. A asks to B, for his blue car for Rs.
2,00,000/-, Mr. C cannot accept the offer.

Legal rules to offer
 The offer must be given with an intention to create legal relationship - A social invitation
even if it is accepted, does not create a legal relationship because it is not intended so.
 The terms of the offer must be definite: the terms of the offer must be definite and certain
and must not be ambiguous or vague.
 Offer must be communicated: an offer to be complete must be communicated to the
person to whom the offer is made. Mere by acting to the terms of the offer without
knowledge, the offer cannot be treated as accepted. An acceptance of offer in ignorance of
offer is no acceptance and does not confer any right on the acceptor.

 Offer may be conditional: When the offer is subject to conditions, they must be clearly
communicated to the offeree. If the person accepts the offer without the knowledge of the
conditions the offeror can’t claim the fulfillment of conditions. But the conditions are
clearly expressed, then offeree can plead ignorance.

 Offer must not contain a term that non-compliance of which may be assumed to amount
to acceptance: the person making the offer cannot say that if acceptance is not
communicated by a certain time, the offer would be considered as accepted
 statement of price is not an offer: a mere declaration of intention or a a mere statement of
price is not construed as an offer to sell.
E.g., Mr. A has 3 cars. He asked Mr. B “are you ready to
purchase my car for Rs. 2 lakhs. The offer is not definite.
Case Law: Lalmann v/s Gauri Dutt- E.g. G sent his servant L in search of his
missing nephew. Subsequently G announced a reward for information
concerning the boy. L brought back the missing boy, without the knowledge
of reward. It was held that there was no contract between L & G and the
reward cannot be claimed.
Case Law: A hotel put a notice in a bed room, exempting the proprietor from liability
for loss of client’s goods. Held, the notice was not effective as it came to the
knowledge of the client only when the contract to take a room had already been
entered into.
P deposited a bag in the cloak room of a railway station. On the face of the ticket,
issued to him, was written “see back”. One of the printed conditions limited the
liability of the company for loss of a package to Rs.10/- The bag was lost and P
claimed Rs. 24.50/- as its value. Held, P was bound by the conditions on the back
of the ticket even if he had not read.
Eg: A offers his black kinetic to B for Rs. 20,000/- and tells him that if I
don’t here anything. From you within 15 days, I will assume that you
have accepted my offer. This offer is not valid

Offer and other forms
 There is a clear difference between offer, invitation to offer or an announcement:
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 the future and not that an offer is made now. E.g., Auction sale, will, etc.

 An invitation to make offer: display of goods by the shopkeeper with a price marked
on it does not make an offer, but merely gives an invitation to the public to make an
offer to buy the goods at the price marked on it. E.g., quotations, catalogues,
advertisements, prospectus issued by the company, etc.
 Tender is an offer to the invitation of an offer. (public ad).
 Tender can be definite offer to supply specified goods and services.
 Tender can be standing offer.
Eg: A invites tenders for the supply of 100 bricks. X, Y, and Z
submit the Tender. A accepts the tender given by X. There is
binding contract between A and X
Eg; a railway Co. invited tender for certain Iron articles which
it might require over a year. W’s tender was accepted. He
supplied goods for some time. He refused to supply at a later
time. But the contract is binding on W

Acceptance –Meaning:
 When a 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
 Acceptance may be implied or expressed. In
express acceptance, while that given by conduct is
termed as implied acceptance.

Legal rules to acceptance
 Unconditional - An acceptance in order to be binding must be absolute/complete
and unconditional. The acceptance must be to all terms of offer.
 Communicated to the offeror
 Must be given in the prescribed mode - if the acceptance is not according to mode
prescribed, or some usual or reasonable, there is no contract.
 Given in a reasonable time - if any time limit is specified, the acceptance must be
given within that time. If no time limit is specified by the offeror, then it must be
given within a reasonable time and it depends on the facts of the case
 Must be given by the parties, to whom the offer is made - When an offer is made to
a particular person, it can be accepted by him alone. If it is accepted by another
person, there is no valid acceptance
 Must be given before the offer lapses or withdrawn
 It cannot precede an offer
 Once the offer is rejected it cannot be accepted by the offeree, unless the offeror
renews the offer
 It cannot be implied for the silence - the acceptance of an offer cannot be implied
from the silence of the offeree, unless the offeree has, by his previous conduct
inducted that his silence means the acceptance.
Eg; A offers his car to B for Rs. 50,000/- B accepted the offer
and paid Rs. 49,000/- cash down and promised to pay balance
of Rs. 1,000/- by tomorrow. This is no acceptance
Case Law: Lalmann v/s Gauri Dutt - G sent his servant L in search of his
missing nephew. Subsequently G announced a reward for information
concerning the boy. L brought back the missing boy, without the knowledge
of reward. It was held that there was no contract between L & G and the
reward cannot be claimed.
Eg: a makes an offer to B and says “ if you accept the offer
reply by wire. B sends the reply by post. It is not a valid
acceptance.
Case Law: on 08th June, Mr. M offered to take shares in R Co. He received a
letter of acceptance from R Co. on November 23. He refuses to take the shares.
Held, Mr. M, was entitled to refuse, as his offer has lapsed as the reasonable
period during which it could be accepted had elapsed (Ramsgate Victoria
Hotel Co., vs. Monteflore)
Company allotted the shares to a person who had not
applied for them. Subsequently, when he applied for
shares he was unaware about previous allotment. Thus,
previous allotment is void.

Lapse or termination of offer
 I. By communicating the notice of revocation - Offeror can give notice of
revocation to offeree but before the acceptance is complete as against him.
 e.g., At an auction sale, A makes the highest bid of B’s goods. He withdraws the bid
before the fall of the hammer. The offer has been revoked before its acceptance.
 II. Lapse of Time - If the time is fixed in the offer then offer revokes at a fixed
time is over, otherwise after the reasonable time.
 e.g., A seller on Thursday offered wool to a purchaser and gave him 3 days time to
accept. The purchaser accepted the offer on Monday, by that time A had sold the wool.
Held, the offer had lapsed.
 III. By non-fulfillment by the offeree of a condition precedent to acceptance
 E.g., S a seller agrees to sell certain goods subject to the condition that B, the buyer,
pays the agreed price before a certain date. S had sold the wool. If before the date buyer
did not pay then the offer is revoked.
 IV. By death or insanity of the offeror provided the offeree comes to know it
before acceptance. But If he accepts an offer in ignorance of the death or insanity
of the offeror, the acceptance is valid.

Lapse or termination of offer
 V. By counter offer - When offer is accepted with some modifications in the terms of the offer,
then it amounts to counter offer. By putting counter offer the original offer comes to an end.
 E.g. A asks B, Are you ready to purchase my flat for 10 lakhs. B asks A, Are you ready
to sell it to Rs. 8 lakhs. B’s question to A is a counter offer.
 E.g. An offeree agreed to accept half the quantity of goods offered by the offeror on the
terms and conditions as would have applied to the full contract. Held, there was no
contract as there was a counter offer to the offer.
 VI. If an offer is not accepted according to the prescribed or usual mode provided the offeror
gives notice to the offeree within a reasonable time that the acceptance is not according to the
prescribed or usual mode. If the offeror keeps quiet, he is deemed to have accepted the
acceptance.
 VII. If the law is changed. An offer comes to an end if the law is changed so as to make the
contract contemplated by the offer illegal or incapable of performance.
 VIII. Destruction of subject matter: - ‘A’ offers ‘B’ his cow for Rs. 4500/- In the mean time, the
cow dies due to snake bite. The offer is lapsed.
 Rejection of offer: - An offeree may reject the offer. Once he does that he cannot subsequently
accept it.
 Rejection of the offer may be express or implied.
 Express Rejection: The offeree may reject the offer expressly, i.e., by words written or
spoken. This is effective only when notice of rejection reaches the offeror.
 Implied Rejection: Rejection of the offer is implied by law- where the offeree makes a
counter-offer or where the offeree gives a conditional acceptance

Communication of Offer.
 The communication of a proposal is complete- when it comes to the
knowledge of the person to whom it is made.
 The communication of an acceptance is complete –
 as against the Proposer, when it is put in a course of
transmission to him so at to be out of the power of the acceptor;
 as against the acceptor, when it comes to the knowledge of the
Proposer
E.g., A Proposes, by a letter, to sell a house to B at a certain price. The
letter is posted 10th July. It reaches B on 12th July. The
communication of the offer is complete when B receives the letter, i.e.,
on 12th July.
E.g., in the above case, when B accepts A’s Proposal, by a letter sent by post on
13th instant. The letter reaches on 15th instant. The communication of acceptance
is complete, as against A, when the letter is posted, i.e., on 13th, as against B,
when the letter is received by A, i.e., on 15th. (Case of NT Rama Rao)

Revocation of Offer
Revocation means
 taking back or
 Withdrawal or
 cancellation.

Communication of Revocation of Offer
 The communication of a revocation is complete -as
against the person who makes it (i.e. for the
revoking party), when it is put into a course of
transmission to the person to whom it is made, so as
to be out of the power of the person who makes it;
(i.e. when the letter of revocation is posted.)
 (For the opposite party) as against the person to
whom it is made, when it comes to his knowledge
(when the letter reaches him)
E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is
posted 15th May. It reaches B on 20th May. A revokes his offer by a telegram on
19th May. The telegram reaches B on 21st May. The revocation is complete as
against A when the telegram is dispatched, i.e., on 19th May. It is complete as
against B when he receives it, i.e., on 21st May.

Time for Revocation of Proposals and
Acceptance
 A proposal may be revoked at any time
before the communication of its acceptance is
complete as against the proposer, but not
afterwards.
 An acceptance may be revoked at any time
before the communication of the acceptance
is complete as against the acceptor, but not
afterwards.
Ex: Mr. A proposes by a letter sent by post to sell his house to Mr. B. the
letter is posted on the 1st of the month. Mr. B accepts the proposal by a
letter sent by post on the 4th. The letter reaches Mr. A on the 6th.
Mr. A may revoke his offer at any time before Mr. B posts his letter of
acceptance, i.e., 4th but not afterwards
Mr. B may revoke his acceptance at any time before the letter of acceptance
reaches Mr. A, i.e., 6th, but not afterwards

Loss of letter of acceptance in postal
transit:
 Acceptance is complete as against the offeror as
soon as the letter of acceptance is posted.
 The contract is complete even if the letter of
acceptance goes astray or is lost through an accident
in the post.
 But in order to bind the offeror, it is important that
the letter of acceptance is correctly addressed,
adequately stamped and posted,
 Otherwise the acceptance is not complete

Revocation how made
 A proposal is revoked –
 (1) by the communication of notice of revocation by the Proposer
to the other party;
 (2) by the lapse of the time prescribed in such proposal for its
acceptance, or, if no time is so prescribed, by the lapse of a
reasonable time, without communication of the acceptance;
 (3) by the failure of the acceptor to fulfill a condition precedent
to acceptance; or
 (4) by the death or insanity of the Proposer, if the fact of the
death or insanity comes to the knowledge of the acceptor before
acceptance.

Consideration – Meaning:
 When a party to an agreement promises to
do something,
 he must get something in return.
 This something in return is defined as
consideration.
 .
E.g., A agrees to sell his car to B for Rs.15000/-, for A’s promise the
consideration is Rs.15000/- and for B’s promise the consideration is the car.

Legal Rules to Consideration
 Move at the desire or request of promisor - An act constituting consideration must have been done at the desire
or request of the promisor, if it is done at the desire of the third party or without the desire of the promisor it will
not be a good consideration.
 It may move from the Promisee or any other Person – This means that as long as there is a consideration for a
promise it is immaterial who has furnished it. But a stranger to the consideration will be able to sue only if he is a
party to the contract
 It may consist of an Act or Abstinence (means not doing something)
 Consideration can be past, present or future -
 It need not be adequate - Consideration as said “something in return” and something this something in return
need not be equal in value to “Something given”. The law requires that the contract must be supported by
consideration and not the adequate consideration.
 Must be real & not illusionary - There is no real consideration in the following cases:
 Physical impossibility: A promises to put life into B’s dead wife on the consideration of Rs.999. A’s promise
is physically impossible to perform.
 Legal impossibility: A owes Rs.500 to B, he promises to pay Rs.50 to C, the servant of B, who inreturn
promise to discharge A from the liability. This is legally impossible, because C cannot discharge A from the
debt due to B.
 Uncertain consideration: A engages B for doing certain work and promises to pay a “Reasonable some”.
There is no recognized method of ascertaining the “Reasonable Some”. The promise is unenforceable due to
uncertainty.
 Should not be illegal - the consideration given for an agreement must not be unlawful. A consideration to the
contract must not be against Public Policy, Immoral and illegal
 It must be something which the promisor is not already bound to do: a promise to do what one is already bound
to do, either by general law or under an existing contract, is not a good consideration for the new promise, since it
adds nothing to the pre-existing legal or contractual obligation.
E.g., A borrows Rs. 20,000/- from B at a rate of 10% p.a. but A fails to pay the amount. B
is now about to file a suit and A agrees now to pay a higher rate of interest. B agrees for
not filing a suit. This forbearance is a valid consideration.
E.g., supari to kill someone.
CL: There was a promise to pay to the vakil an additional sum if the suit was
successful. Held, the promise was void for the want of consideration. The vakil
was under a pre-existing contractual obligation to render the best of his services
under the original contract. (Ramachandra Chintaman vs. Kalu Raju)

Exception to the rules of consideration
 Where an agreement is expressed in writing and registered
under the law for the time being in force for the registration of
the documents and is made on account of natural law and
affection between parties standing to the near relation to each
other, it is enforceable even if there is no consideration
 Promise to pay a time-bared debt: A promise to pay a time-
bared debt by the debtor is enforceable provided it is made in
writing and signed by the person to be charged therewith or by
his agent. The debt must be such “of which the creditor might
have enforced payment but for the law for the limitation of
suits”
 Completed gifts
 Compensation for the past voluntary services
 Charitable subscription
Eg: On a birthday party of A, his father Mr. B promises to give him Rs.
10000/-. Mr. B puts his promise in writing and gets it registered it. It is a
valid consideration.

 Completed gifts –
 The rule No consideration, no contract does not apply to
completed gifts.
 In order to attract this exception there need not be natural
love and affection or nearness of relationship between
donor and donee. The gift must, however, be complete.
 Compensation for the past voluntary services - is
binding.
 E.g. P finds S’s purse and gives it to him. S promises to give
P Rs. 100/- This is a contract i.e., A promise, to compensate,
wholly or in part, a person, who has already voluntarily
done something for the promisor, is enforceable, even
though without consideration.

 Contribution to Charity:
 A person to contribute to charity , though gratuitous, would be enforceable,
if on the faith of the promised subscription, the promisee takes definite steps
in furtherance of the object and undertakes a liability, to the extent of
liability incurred, not exceeding the promised amount of subscription.
 E.g. The defendant had agreed to subscribe Rs. 100/- towards the
construction of a Town hall at Howrah. The plaintiff (secretary of the town
hall) on the faith of the promise entrusted the work to a contractor and
undertook liability to pay him. The defendant was held liable. But where the
promisee had done nothing on the promise, a promised subscription is not
legally recoverable.
 E.g. The defendant promised to subscribe Rs. 500/- to a fund started for
rebuilding a Mosque but no steps had been taken to carry out the repairs.
The defendant was held not liable and the suit was dismissed.

Doctrine of Privity of Contract
 Meaning:
 The general rule is that only the parties to a
contract can sue and be sued upon the contract.
 In other words, if a person is not a party to the
contract (i.e., a stranger to contract), he cannot
sue.
 It implies the mutuality of will and legal bonding
between the parties.
 It refers to the relationship between the parties
who have entered into a contract.
 Stranger to Contract V. Stranger to Consideration
Dunlop Pneumatic Tyre Co. V Selfridge and Co.
# D entered into a contract of sale of certain tyres to P.
# The contract provided that P shall not sell the tyres below the
list price. Also, the contract provided that P shall, at time of resale,
impose a condition on the retailer that sale by retailer shall not be
made below the list price.
# P sold certain tyres to S. S resold certain tyres below the list
price.
# In a suit instituted by D against S, the court held that such suit
was not maintainable since there was no Privity of contract
between S and D.
A who is indebted to B, sells his property to C. C promises to pay
off the debt to B. When C fails to pay; B has no right to sue C,
because he is a stranger to contract.

Exceptions – Stranger to Contract has the
right to sue in the following cases:
 Trust or Charge
 Marriage Settlement, Partition and other
family arrangements; and such agreements is
reduced to writing.
 Acknowledgement of liability; by past
performance thereof
 Assignment of a Contract
 Contracts entered into through an Agent
 Covenants running with land
Beneficiary, in whose favour a Trust of other interest in some
immovable property has been created can enforce it, even
though he is not a party to the Contract (Madhu Trading Co. V
UOI).
A husband who was separated from his wife executed a separation deed
by which he promised to pay to the Trustees all the expenses for her
maintenance. Held, the agreement created a trust in favour of his wife and
could be enforceable by her (Gandy V. Gandy).
X receives money from Y for paying it to Z. X admits the receipt of that
amount to Z. Z can recover the amount from X, even though the money
is due from y.
A holder in due course is entitled to the amount on a Negotiable
Instrument, even though there is no agreement between him and
the maker/drawer.
The Purchaser of immovable property who has notice that the owner of
the land is bound by certain conditions or covenants created by an
agreement affecting the land, shall be bound by such conditions, even
though he is not a party to the original agreement containing those
conditions or covenants.

Capacity To Contract–Meaning
 Every person is competent to contract who is of:
 the age of majority according to the law to which he is subject,
 sound mind, and
 is not disqualified from contracting by any law to which he is subject.
 Section 11 declares the following persons to be incompetent to contract.
 Minors
 Persons of unsound mind
 Persons disqualified by any law for the time being in force.
 Idiot
 Lunatic with unsound mind
 Alien enemy
 Convicts

Minor - Meaning
 Minors: according to Section 3 of the Indian Majorities Act, 1875, a minor is
a person who has not completed eighteen years of age. In the following two
cases, he attains majority after twenty one years of age:
 Where a guardian of a minor’s person or property has been appointed
under the guardian and wards Act, 1890, or
 Where the superintendence of a minor’s property is assumed to be court
of wards.
 The rules governing minor’s agreements are based on two fundamental
rules:
 The first rule is that the law protects minors’ against their own
inexperience and against the possible improper designs of those more
experienced.
 The second rule is that, in pursuing the above object, the law should not
cause unnecessary hardship to person who deals with minors.

Legal rules of Minors:
 An agreement with minor is void- ab-inito:
 He can be a Promisee or a Beneficiary: incapacity of minor to enter into a
contract means incapacity to bind him-self by a contract. There is nothing
that debars him from being a beneficiary. Such contract may be enforced at
the option of the minor and not the other party.
 Minor cannot ratify his contract, on attaining majority: “Consideration
which passed under earlier contract cannot be implied into the contract
which the minor enter on attaining the majority. Thus consideration given
during the minority is no consideration. If it is necessary a fresh contract
may be entered into by the minor on attaining the majority provided it is
supported by a fresh consideration
 He can always plead minority: even if he has, by misrepresenting his age,
induced the other party to contract with him, he cannot be sued either in
contract or in tort for fraud because if the injured party were allowed to sue
for fraud, it would be giving him an indirect means of enforcing the void
agreement.
Remember in the case we discussed, a minor mortgaged his house in favour of a
money lender to secure a loan of Rs.20, 000/- Subsequently the minor sued for
setting a side the mortgage, stating that he was underage when he executed the
mortgage. Held, the mortgage was void and, therefore, it was cancelled. Further
the money lender requested for the repayment of the amount advanced to the
minor as part of the consideration for the mortgage was also not accepted (Mohiri
Bibi vs. Dharamodas Ghose)
Case law: M, Aged 17, agreed to purchase a second hand scooter for Rs.5000/-
from N. he paid Rs.200/- as advance and agreed to pay the balance the next day
and collect the scooter. When he came with the balance money next day, N told him
that he has changed his mind and offered to return the advance. N cannot avoid the
contract, though M may, if he likes. (Sharafat Ali v/s Noor Mohd)
Case law: M, A minor, borrowed Rs.5000/- from L and executed a Promissory
note in favour of L. after attaining the majority, he executed another Promissory
note in settlement of the first note. The second Promissory note is void for the
want of consideration. (Indran Rama Swamy v/s Anthiappa Chettiar)

 If he has received any benefit under a void agreement, he cannot be
asked to compensate or pay for it: section 65 which provides for
restitution in case of agreements discovered to be void does not apply
to the minor
 There can be no specific performance of the contract with minor,
since agreement with minor is void-ab-inito: Can’t file a suit for
specific non performance. But if a contract is entered into on his
behalf by his Parents / guardian then the same can be enforced by or
against the minor provided the contract is (a) within the scope of the
authority of the Parent / guardian, and (b) for the benefit of the
minor.
 He cannot enter into a contract of Partnership: a minor can be
admitted as a beneficiary of Profits of a Partnership firm already in
existence, with the consent of all the existing Partners. But he cannot
be admitted as a Partner
 He can be an agent: an agent is merely connecting link between
Principal and third Party. The movement the Principal and third party
comes into contract with each other, the agent drops out with any
personal liability, hence a minor can act as agent.
Legal rules of Minors:
Ex: Mr. M, a minor, obtains a loan by mortgaging his property. He is not liable to
refund the loan not only that, even his mortgaged property cannot be made liable
to pay the debt.

Legal rules for a Minor
 His Parents / guardian are / is not liable for the contracts of the minor: the
exemption to this rule is that where the minor act as an agent of his Parent /
guardian, the Parent / guardian shall be liable for his acts.
 He cannot be adjudged as an insolvent.
 He cannot be a shareholder in a Company.
 He can be member in a Trade union: A Person who attained the age of 14 years can
be admitted as a member.
 Minor’s liability for necessaries: a minor is liable to pay out of his property for
“necessaries” supplied to him or to anyone whom he is legally bound to support
(Section 68). The claim arises not out of contract but out of what are called Quasi-
Contracts. Again it is only the property of the minor, which is liable for meeting the
liability arising out of such contracts. He is not personally liable.
Case law: G, a minor, entered into a contract with R, a noted billiards player, to
pay him certain sum of money to learn the game and play matches with him during
his world tour. R spent time and money in making arrangements for billiards
matches. Held, G was liable to pay as the agreement was one for necessaries as it
was in effect “for teaching, instructions and employment and was reasonable and
for the benefit of the infant.” (Robarts v/s Gray)

Legal rules for a Minor
 No rule of Estoppel to minor
 Estoppel means A person making a statement by words spoken or
written which induces others to believe and acted upon.
 Rule preventing a person from denying the truth of such a statement
made previously by words spoken or written, by which he has led
another to believe and acted upon.
 Therefore, he is stopped from denying the said statement.
 i.e. cant say no, so should act.
 Minor is liable for Tort
 Surety for a Minor: a person who stands as surety for a minor can be sued
though the minor himself would not be liable

Unsound Mind
 A person is said to be of sound mind for the propose of making a
contract, if,
 at the time when he makes it, he is capable of understanding the
terms of the contract and
 To form a rational judgment as to its effect upon his interest.
 Therefore, if both of the above is not satisfied, then is a person
suffering of unsound mind.Eg:
 Idiots
 Lunatics
 Drunkards
 A person, who is usually of unsound mind, but occasionally of
sound mind, may make a contract when he is of sound mind

Lunatics
 Lunatic is a person who suffers from
intermittent intervals of sanity and insanity.
 All agreements made by lunatics during
intervals of sanity are valid
 Property of lunatic is liable for necessities of
life contracts but a lunatic cannot be held
personally liable

Idiots
 Idiot is a person who has completely lost his
mental balance.
 An agreement with an idiot is absolutely
void.

Drunkards
 A high level of intoxication make a
drunkards contract void
 A contract made by a person so intoxicated
as not to know the consequences of his act is
not binding on him

Few other Persons are also Prohibited to
enter into a contract.
 Alien Enemy.
 Insolvent.
 Foreign Sovereigns, their diplomatic staff
and accredited representatives of the
foreign states.
 Corporations (beyond MOA and AOA).
 Convicts

Contract by the other person disqualified
by law
 Alien enemy – Contracts with an alien enemy (who is a citizen of a foreign country which
is not in peaceful terms with India) are void on the grounds of public policy.
Contracts may be suspended during the war and may be revived after the war is over,
provided they are not time-barred.
 I Position of Contracts during War – An alien enemy can neither enter into contract nor
can be sued in an Indian Court except by the license by the Government.
 II Position of contracts during the war:
 If such contracts are against the public policy or are such that may benefit the enemy, then such
contracts are dissolved.
 If such contracts are not against public policy, then such contracts are merely suspended for the
duration of the war and revived after the war is over unless they have already become time barred
under the Law of Limitation.
 E.g. X, an Indian citizen, carries on a business in Pakistan. He enters into a contract with Y
who carries on business in India. Immediately after the formation of the contract, a war
broke out between India and Pakistan. In this case, X becomes an alien enemy though he is
Indian and contract between x and y (if not against the public policy) will be suspended for
the duration of the war and revived after the war is over.

Few other Persons are also Prohibited to
enter into a contract
 Foreign Sovereign and Ambassadors: - They can enter contract and enforce those
contracts in our courts but they cannot be sued in our courts without the sanction of
the Central Govt.
 Company under the companies act or statutory corporation under the special act of
parliament: - The contractual capacity of the company is determined by objects clause
of its Memorandum of Association, whereas that of the statutory corporation is
determined by the statute creating it. Any act in excess of the power given is ultra
vires and hence void.
 Insolvents - When a person is declared insolvent, it is only the Official Receiver or
Official Assignee who can enter into contracts relating to his property and sue and be
sued on his behalf. Thus, as soon as a person is declared insolvent, he looses his
contractual capacity.
 Convicts: A convict cannot enter into a contract while he is undergoing
imprisonment. Thus, this incapacity is only during the period of sentence.
 Insolvent – after the “order of discharge’’ he is competent to enter into contracts.

Free consent –Meaning
 The consent of parties are said to be free when they are of same
mind on all material terms of contract. The parties are said to be
of same mind when they agree on 3’s
 Same subject matter
 Same sense
 Same time
 If any one of the following elements are in agreement, we can
say that there is absence of free consent
 Coercion
 Undue Influence
 Fraud
 Mistake
 Misrepresentation

Coercion
 Coercion" is the
 committing, or threatening to commit, any
act/crime or
 the unlawful detaining, or threatening to detain,
any property or any act
 forbidden by the Indian Penal Code 1860
 with the intention of causing any person to enter
into an agreement.
 Threat to commit Suicide amount to Coercion
E.g. A threatens B to shoot him if he does not release him from
debt which A owes to B. This is coercion.

Undue Influence
 Undue Influence means:
 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.
 And such party uses his position to dominate the will of the
other party to obtain an unfair advantage over the other party
 Essentials:
 There must be two persons.
 The relationship should satisfy between them.
 One should dominate the other.
 There must be unfair advantage.
 It is a moral character

Undue Influence
 Some of the examples where undue influence exists
between the following relations:
 Superior and subordinate
 Principal and agent
 Doctor and Patent
 Promoter and Company
 Solicitor and Client
 Father and Son
 Teacher and Student
 Spiritual guru and devotee
Case Laws: A Spiritual guru induced his devotee to gift him the whole of
his property in turn of a promise of salvation of the devotee. Held, the
consent of the devotee was given under the undue influence. (Mannu
Singh v/s Umadat Panday)

Undue Influence
 Under the following relationship there is no
assumption of undue influence.
 Husband and Wife
 Landlord and tenant
 Debtor and Creditor

COERCION UNDUE INFLUENCE
Consent is given under threat The consent is given by a person
who is so situated in relation to
another that the other person is in
a position to dominate his will
Coercion need not proceed from
parties to the contract but can be
done thro/by a stranger
Undue influence is between the
parties to the agreement
Contract is voidable at the option
of one of the parties of the contract
The contract is either voidable or
the court may enforce it in a
modified form
Coercion is mainly of physical
nature
Undue influence is of moral and
psychological nature

Fraud
 Essentials:
 There must be a representation
 There must be two persons
 There must be an active concealment of the fact
 The person making the representation does not believe it to
be true
 There must be an intention of the proposer or the promiser
to deceive the other person
 The other person must have relied upon the representation
and must have been deceived and suffered loss
 The representation must have been made before the
Commencement of the contract
 The representation must relate to a material fact which
exists now or existed in the past

Fraud
 The party defrauded has the following
remedies:
 The contract can be rescinded within reasonable
time limit
 He can insist on the performance of the contract
on the condition that he shall be put in the
position in which he would have been if the
representation made had been true
 He can sue for damages

Misrepresentation
 Essentials:
 It must be representation of material fact
 It must be made before the conclusion of the
contract
 It must be wrong but the person making it
believes it to be true
 It must have been made without any intention of
deceiving the other Person
 It need not be made directly made to the Plaintiff
CL: A company’s prospectus contains a representation that it has
statutory powers to run its tramways by steam provide that the consent
of the government was obtained. The directors issued prospects stating
therein that the company had the right to use steam power. They honestly
believe that the permission for the use of steam power would be granted.
The permission was refused. The company was that wound up. Held, the
directors were guilty of misrepresentation (Derry vs. Peek)

MISREPRESENTATION FRAUD
It is a false statement
without any intention to
deceive
It is a false statement
deliberately, or recklessly
made to deceive another
It is also called innocent
misrepresentation
It is also called intentional
misrepresentation
It makes the contract
voidable at the option of
the party injured
It besides avoiding the
contract. The aggrieved
party also has right to sue
for damages

Mistake
 Mistake may be defined as an erroneous belief
about something.
It may be of two kinds
 mistake of law
 Mistake of own country
 Mistake of foreign country
 mistake of fact
 A bilateral mistake
 Unilateral mistake

Mistake of law
 Mistake of law of the country is no excuse,
is a well-settled rule of law. A Party to the
contract cannot be allowed to ask for relief on
the ground that the act was done in
ignorance of law.
 Mistake of law of a foreign country: such
mistake is treated as mistake of fact, and such
agreement is treated as void.
E.g. A & B purchases and sells a plot of land of 195 sq.mts. in Dublin,
believing that a house can be constructed over it. Actually in Dublin
house cannot be constructed on a plot less than 200 sq.mts. The contract
can be avoided.

Mistake of fact
 Unilateral Mistake - Unilateral means only one party to a contract is under a mistake of
fact. A contract can be avoided on the ground of unilateral mistake, if it can be shown that
mistake was caused by Fraud or misrepresentation.
Types:
A unilateral mistake may be-
 Mistake as to the nature of transaction
 Mistake as to identity of party
Bilateral Mistake - Where both the parties to an agreement are under a mistake as to a
matter of fact, the agreement is void.
Types
Mistake as to existence of subject-matter
Identity of subject-matter
Title of subject-matter
Quality of subject-matter
Quantity of subject-matter
Price of subject-matter
E.g. A agrees to buy a horse from B at certain price. The horse was dead at the time of
bargain and neither party was aware about the fact. Held, the agreement is void.
E.g. A person was induced to sign a gift deed (will), on the presentation that it
was a power attorney.
E.g. X goes to a shop and introduces himself as Y and purchases some goods
on credit. The contract is void.
E.g. X goes to a shop and introduces himself as Y and purchases some
goods on credit. The contract is void.

Lawful objects
 The consideration or object of an agreement is
lawful, unless –
 It is forbidden by law; or
 is of such nature that, if permitted it would defeat the
provisions of any law or
 is fraudulent;
 of involves or implies, injury to the person or property of
another; or
 the Court regards it as immoral, or
 opposed to public policy
 Every agreement of which the object or
consideration is unlawful is void.

Lawful objects
 It is forbidden by law - An act is forbidden by law when it is punishable
under the criminal law or is prohibited by special legislation or regulations
made by the competent authority.
 is of such nature that, if permitted it would defeat the provisions of any
law
 is fraudulent - an agreement if any made for any fraudulent purpose is
void. Thus, an agreement with an intention of fraud of creditors with a
view to defeat their right is void.
 of involves or implies, injury to the person or property of another - injury
means wrong, harm or damage. Person means ones body, property
includes both movable and immovable.
 the Court regards it as immoral - an agreement, the consideration or object
of which is immoral, e.g., agreement between husband and wife for future
separation, is unlawful (Sumitra Devi v/s Sulekha Kundu)
 opposed to public policy – An agreement which is injurious to the general
public or is against the interest of the society

VOID AGREEMENTS
 Agreements by incompetent parties
 Agreements under mutual mistake of fact material to the
agreement
 Agreement with unlawful consideration or object – (a) immoral
& illegal agreements (b) agreements opposed to public policy
 Agreements unlawful in part
 Agreements without consideration
 Agreements in restraint of marriage
 Agreements in restraint of legal proceedings
 Agreements which are uncertain and ambiguous
 Agreement by way of wager or wagering agreements
 Agreements to do impossible acts

Bailment, Bailor and Bailee
 Bailment is
 The delivery of goods, by one person to another, for some
purpose,
 Upon a contract that they shall, when the purpose is
accomplished,
 Be returned or otherwise disposed of,
 According to the instructions of the person delivering
them. (Section 148)
 Bailor
 is the person delivering the goods
 Bailee
 is the person to whom the goods are delivered.

Essentials of Bailment
 Contract
 Delivery of the Goods – Delivery of
possession of goods by Bailor to Bailee
 Possession (not ownership) is transferred
 Modes of Delivery
 Purpose (goods must be returned after a
specific purpose is accomplished)
 Consideration (generally in the form of
money payment)

Duties of the Bailor
 Disclose faults in goods (Sec 150)
 Bear Expenses (Sec 158)
 Indemnify(secure in respect of harm) Bailee
(Sec 159 & Sec 164)
 Receipt of Goods back on termination of
bailment

Duties of Bailee (or) Rights of Bailor
 Care of Goods (Sec 153)
 To act consistently with the terms (Sec 153)
 Compensation for damage to goods (Sec 154)
 Not to mix goods bailed with others
 With bailor’s consent (Sec 155)
 Without bailor’s consent
 Return of the goods bailed (Sec 160)
 Compensation for failure to return (Sec 161)
 Increase or profit from goods bailed (Sec 163)
 Delivery of goods to Joint Bailors (Sec 165)

Rights of Bailee
 Enforcement of Bailor’s duties
 Delivery of goods to Joint Bailors
 Delivery of goods when Bailor’s title is
defective (Sec 166)
 Right of Lien (Secs 170 & 171)
 Wrongful deprivation of goods (Secs 180 &
181)

Pledge
 Pledge is a Bailment of goods as security for
payment of a debt or performance of a
promise
 Pawnor is the Bailor of such goods
 Pawnee is the Bailee of the goods
 Eg., A borrows Rs.200 from B and keeps his
watch as security for payment of the debt,
the bailment of watch is a pledge.

Essential Elements of a Contract of
Pledge
 Delivery of Goods (may be actual or
constructive)
 Security
 Goods – Only goods can be pledged. Goods
includes Shares, Documents, Promissory
Notes, Bills of Exchange or Valuable things.
However, money i.e., currency notes, cannot
be pledged.

Rights of a Pawnee/Pledgee
 Right of Retainer (Sec 173)
 Retainer for subsequent advances (Sec 174)
 Reimbursement of Expenses (Sec 175)
 Rights in case of default by Pawnor (Sec 176)
 Suit
 Retention/Sale of Goods
 Surplus/Deficit on Sale
 No Notice
 Right against true owner (Sec 178A)

Rights of a Pawnor
 To get back goods
 To redeem goods before sale (Sec 177)
 Right to Notice of Sale
 Goods in proper condition

Pledge V. Bailment
 Pledge
 Purpose: specific
 Sale of goods: Pledgee
has a right of sale of
pledged on default of
pawnor
 Use of goods: No right
 Bailment
 Purpose: other purposes
like repairs, safe custody,
etc.,
 Sale of goods: No right
 Use of goods: Can use as
per the terms of the
contract

Law of Agency
 Definitions (Sec 182)
 Agent Is a person employed
 To do any act for another, or
 To represent another in dealings with third parties
 Principal
 Is the person
 For whom such act is done, or
 Who is so represented

Who can appoint Agent (Sec 183)
 Any person who
 Has attained the age of majority
and
 Is of sound mind,
can appoint another person as his agent to
act on his behalf with an authority to bind him.

Who may become Agent (Sec 184)
 As between Principal and the third party,
any person can become an Agent.
 Even a person who
 Has not attained majority; or
 Is of unsound mind, can become an agent of
another.

Essentials of a Contract of Agency
 Test for Agency
 Rules as to Agency (Maxim: qui facit per
alium facit per se)
 Elements of Agency
 Intention
 Express/Implied Agreement
 Consideration not necessary
 Capacity to employ agent
 Capacity to be employed as agent

Kinds of Agents
 Based on Authority
 Universal Agent
 General Agent
 Special Agent
 Based on Nature of Work
 Commercial or Mercantile Agents
 Non-mercantile Agents

Duties of an Agent/Rights of the Principal
 To act as per Principal’s directions (Sec 211)
 Skill and diligence (Sec 212)
 Render proper Accounts (Sec 213)
 Communicate with Principal (Sec 214)
 Not to deal on his own account (Secs 215 &
216)
 Pay all sums received (Sec 218)
 No remuneration for business misconducted
(Sec 220)
The Principal instructed his agents to deliver goods only against
cash but agent delivered them on credit. Held Agent was liable for
the price which the purchaser failed to pay (Paul Bier V. Chottalal)A, an agent for sale of goods, having authority to sell on credit,
sells to B on credit, without making proper and usual enquiries as
to his solvency. B, at the time of such sale is insolvent. A must
make compensation to his principal in respect of any loss thereby
sustained.
A employs B to recover Rs. 1 lac from C. Through B’s misconduct
the money is not recovered from C. B is not entitled to
remuneration for his services, and shall make good the loss
sustained.

Contd.,
 Not to make secret profits
 Not to disclose information
 Upon termination of agency (Sec 209)
 Not to delegate authority (Sec 190)
 Liable to pay damages

Rights of an Agent/Duties of the Principal
 Right of Retainer (Sec 217)
 Right to Remuneration (Secs 219 & 220)
 Right of Lien (hold property to recover debt
Sec 221)
 Right to be indemnified (Secs 222, 223, & 224)
 Right to compensation (Sec 225)
 Right of stoppage in transit
 Liability of Principal inducing others (Sec
237)

Mode of creation of Agency
 Express Agreement
 Implied Agreement
 Agency by Estoppel
 Agency by Holding Out
 Agency in case of Necessity
 Agency by Ratification
 By operation of Law
A residing in Delhi and has a house at Kolkata. He
appoints B in Kolkata, by a Power of Attorney, as a
caretaker of his house.A owns a shop in Noida but lives in Delhi. He visits the shop
occasionally which is managed by B. B usually orders from C in
A’s name for the shop, and pays them out of A’s funds with A’s
knowledge. B has an implied authority from A to order goods from
C in his name for the shop.
P consigns goods to N with instructions not to sell below a fixed price. J
enters into an agreement with N (who also does not indicate the reserve
price) for the purchase of entire lot at a sum below reserve price. P keeps
quiet. P is stopped from later denying that N did not have the authority to
sell below the reserve price.
P allows his servant A to buy goods for him on credit from C and pays for
them regularly. On one occasion, P pays A cash to purchase goods. A
purchases goods on credit and pockets the money. C can recover the price
from P since through previous dealings, P has held out A as his Agent.
* Partners are considered as Agents of each other and also of the
Firm.
* The management of a Company is considered to act as an
Agents of the Company.
Meaning: When a person does some act on behalf of another
without such other’s knowledge, the act may be ratified(to
approve or sanction or confirm) or disown by the other person.
When he opts to ratify the same, he is bound by the acts as if he
had expressly authorised the person to do the act on his behalf
(Sec 196).
A without authority, buys goods, for B. Later B sells them to C on his
own account; B’s conduct implies a ratification of purchase made for
him by A.
* Agent may have to sell goods instantly if it is of perishable nature
and cannot withstand until further instructions from Principal.
* A horse sent by rail was not taken delivery at the destination. The
station master has to feed the horse. The Station master becomes
an Agent by necessity and hence the owner shall compensate him.

Conditions for a Relationship to be an
agency by necessity:
 Agent should neither be in a position nor have any
opportunity to communicate with his Principal
within the time available.
 Actual and definite commercial necessity to act
promptly.
 Acted bonafide and for the benefit of his Principal.
 Adopted the most reasonable and practicable cause.
 Possession of the goods belonging to his principal
and which are subject of contract.

Termination of Agency
 By Act of Parties
 Agreement (mutual agreement)
 Revocation by Principal thro notice
 Renunciation by Agent thro reasonable notice
 By Operation of Law
 Completion of Business
 Impossibility of performance
 Expiry of fixed period of time
 Insanity or death of Principal or Agent
 Destruction of subject matter
 Insolvency of Principal
 Termination of Sub-agent’s authority
 Dissolution of a Company
 Principal or Agent becoming Alien enemy

Performance of Contract
 Obligations of Parties to Contracts
 Actual Performance: If the promisor makes an
offer of performance to the promisee and the offer
to perform is accepted by the promisee.
 Attempted Performance: If the promisor makes an
offer of performance to the promisee; but the offer
to perform is not accepted by the promisee (also
called offer to perform or tender)

Persons liable for, and entitled to,
Performance (Sec 40 & Sec 42)
 Persons liable for
Performance:
 Promisor
 Agent of Promisor
 Any of the several joint
promisors
 Legal Representatives of
a Promisor
 Persons entitled to
Performance:
 Promisee
 Agent of Promisee
 All the joint promisees
together
 Legal Representatives of
a Promisee

Performance of Joint Promise
 Jointly and severally liable unless otherwise
provided
 Claim from other joint promisors, if he is
compelled to perform the whole promise or
makes a default in performance of his
promise
 Where one of the joint promisors is released,
other joint promisors shall continue to be
liable.

Discharge of a Contract
 Means termination of contractual relations
between the parties to a contract.
 Modes of Discharge of Contract:
 By performance
 By impossibility of performance
 By mutual agreement
 By lapse of time
 By operation of law
 By breach of contract
*A agrees to sell his bicycle to B and both performed their
respective obligations, the contract is said to be discharged.
* In case of Attempted Performance, since the offer is not
accepted by the other party, the promisor is discharged.
Where the time of performance by a party is due but the party
fails to perform within the time specified, the contract is
discharged by non-performance provided that the contract
contained such specific mentioning.

Discharge by Impossibility of
Performance
 Meaning: If no impossibility existed at the
time of formation of the contract; but the
impossibility arises subsequent to the
formation of the contract; and the
impossibility is of such nature that it makes
the performance of contract is impossible or
illegal is called supervening impossibility.
 Reasons for SI: may arise because of change
in law or of change in circumstances beyond
the contemplation of parties.
E.g.,
•Destruction of subject matter
•Incapacity to perform a contract of personal service
•Outbreak of war
•Non-existence or non-occurrence of things forming the basis of a
contract, etc.,
•Krell V Henry Case law:
•X hired a room from Y for viewing the coronation process of King
Edward.
•The procession was cancelled because of King’s illness
•Since the ultimate and only purpose of the contract was defeated,
the contract was discharged.
Not called as supervening impossibility:
•Commercial impossibility (rise in prices, currency fluctuations)
•Default by third party
•Strikes, Civil disturbances
•Self induced impossibility (deliberate act or negligence)
•Partial failure of objects or partial impossibility
•In H.B.Steamboat Co., V Hulton Case law:
•X agreed to hire a boat from Y for the purpose of viewing the
naval review on the eve of coronation of king and for sailing
around the fleet.
•Due to King’s illness, the naval review was cancelled, but the fleet
was assembled.
•X used the boat for sailing around the fleet.
•Although the primary purpose of the contract was defeated, the
secondary purpose was fulfilled and, therefore, the contract was
not discharged by supervening impossibility.

Discharge by Mutual Agreement
 Novation
 Alteration
 Remission
 Rescission (cancellation of a contract by one
or all the parties to the contract)
 Merger (conversion of an inferior right into a
superior right and the effect is due to
conversion inferior right is discharged)
means substitution of a new contract in place of the original
contract. The consideration for the new contract is the
discharge of the original contract.
* means a change in one or more of the terms of a contract with mutual
consent of parties.
* Discharges the original contract and creates a new one
* Parties remain the same
Where a promisee agrees to dispense with the performance of a
promise made to him or
Extend the time of performance due by the promisor or
Accept any other consideration than agreed to in the contract,
etc.,

Discharge by operation of law
 Death (Contracts involving personal skills,
knowledge or ability of the deceased party
are discharged automatically on the death of
the promisor).
 Insolvency
 Unauthorized material alterations

Discharge by Breach of Contract
 Meaning: Failure of a party to perform his
part of contract
 Consequences:
 The other party is relieved from performing its
part of obligation.
 The other party is entitled to proceed against the
party at fault.
 Actual Breach (on the due date or during
performance)
 Anticipatory Breach
•Where the promisor declares his intention of not performing the
contract even before the time stipulated for performance of
contract has arrived, it is called as anticipatory breach.
•Express Repudiation: If before the time or performance of
contract has arrived, a party expressly refuses to perform the
contract, it is called as express repudation.
•Party disables himself: Impossible for him to perform the
contract, this is called as anticipatory breach by disablement of
a party.
•Effects Option 1: The aggrieved party may wait till the due date,
i.e., it may treat the contract as operative.
•Option 2: The aggrieved party may decide not to wait till the due
date. It may immediately rescind the contract and claim
damages for breach.

Remedies for breach of a contract
 Rescission (means a right available to an
aggrieved party to terminate a contract)
 Suit for damages
 Suit for specific performances
 Suit for injunction
 Suit for Quantum Meriut
Effects: - The aggrieved party is not required to perform his part
of obligation;
- The aggrieved party can claim compensation for any loss caused to
him.
If a party prevents the other party from completing his obligation
under the contract, the aggrieved party may claim payment on
quantum meriut for the part of contract already performed by him.
Injunction means an order of the court restraining a party from
carrying out a particular act.
The remedy is available when the court has the discretion whether
or not to grant injunction; where a party to the contract promises
to do an act which requires personal performance but afterwards
refuses to perform such act resulting in breach of contract, the
court may restrain the defaulting party from performing such act
in future.
.Specific performance means seeking an order from the court that
the promise specified in the contract shall be carried out.
. When actual damages arising from breach are not measurable
and monetary compensation is not an adequate remedy, then SP is
allowed.
. Where damages are an adequate remedy; where the performance
of contract involves numerous or minute details, and, therefore, it
is not possible for the court to supervise the performance of the
contract.
Meaning: Monetary compensation allowed for loss suffered by
the aggrieved party due to breach of a contract.
Object is Not to punish the party at default and To make good
the financial loss suffered by the aggrieved party due to
breach of contract.
A promises B to perform a concert for 3 weeks continuously. A
wilfully absents on the third week. B rescinds the contract. B can
claim for loss sustained for loss sustained due to non-
performance.
e.g., N, a film star, agreed to act exclusively for a particular
producer, for one year. During the year, she contracted to act for
some other producer. Held, she could be restrained by an
injunction (Warner Bros. V Nelson)
E.g., A contracts with B to deliver to him 250 kilos of rice before
1st
may. A could deliver only 130 kilos before 1st
may, and could
not deliver anything later. B retains 130 kilos after that date. He is
bound to pay A for them.

Contract Act 1872 - Business Law

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