INDIAN CONTRACT ACT,

1872
Introduction
 The English Connection:
 Common law: precedents & customs.
 Equity: natural justice.
 Pacta sunt servanda: agreements
must be honored.
 Stare decisis: settled law should not be
disturbed.
Essential elements of a
valid contract: (Sec. 10)
 Agreement - Offer & acceptance
 Legal consequences - rights & obligations
 Capacity of the contracting parties
 Consideration
 Legal object
 Free consent
 Certainty
 Possibility of performance
 Writing & registration
 Not expressly declared to be void.
Offer: Sec.2(a)
 Essentials of offer:
 It must be an expression of the willingness to do
or abstain from doing something.
 Such expression must be to another person.
 Such expression must be made with the intention
to obtain the assent of the other person to such
an act or abstinence.
Rules regarding a valid
offer:
 Offer may be express or implied.
 Must give rise to legal consequences & be
capable of creating legal relationship.
 Terms must be certain & not vague.
 May be specific or general.
 Must not be an invitation to offer.
 Can be made subject to any terms & conditions.
 Must be communicated to offeree.
 Invitation to offer, cross offers & counter offers.
 Communication of special terms
 Prescribed mode of acceptance.
Lapse & revocation of an
offer:
 Lapse of stipulated or reasonable time.
 Acceptance not in prescribed mode.
 Rejection.
 Death or insanity of offeror or offeree before
acceptance.
 Revocation.
 Non-fulfillment of condition precedent.
 Subsequent illegality or destruction of subject-
matter.
Acceptance: Sec 2(b)
 Acceptance must be given only by the person
to whom the offer is made.
 Must be absolute & unqualified.
 Must be in prescribed mode or reasonable
manner.
 Must be communicated.
 Within reasonable time.
 Acceptance must succeed an offer.
 Rejected offers can be accepted only if
renewed.
Consideration: Sec2(d)
 Essentials of consideration:
 Consideration must move at the desire of offeror.
 May move from offeree or any other person.
 Stranger to a contract cannot sue; except in case
of trust created, an addressee of an insured article;
family settlement.
 May be past, present or future.
 Must be of some value.
 Must be real.
“No Consideration, No
Contract”- Exceptions:
 Natural love & affection.
 Agreement to compensate for past
voluntary service.
 Payment of time-barred debt.
 Completed gift.
 Contract of agency.
 Contribution to charity.
Capacity of parties:
(Sec 11)
 Minor :
 Void & inoperative
 No restitution
 Beneficial agmts are valid
 No ratification on attaining the age of majority.
 Rule of estoppel does not apply.
 Minor’s liability for necessaries.
 Specific performance.
 Minor partner
 Minor agent
 Minor & insolvency
Unsound mind: Sec 12
 Usually of sound mind.
 Usually of unsound mind
 Causes:
 idiocy
 Lunacy
 Drunkenness
 Hypnotism
 Mental decay
 Effects:
 Void & inoperative
 Similar to agreements entered into by minors.
Disqualified persons:
 Alien enemies
 Foreign sovereigns & ambassadors
 Convicts
 Married women
 Insolvents
Free consent: Sec 14
 Coercion
 Undue influence
 Misrepresentation
 Fraud
 Mistake
Coercion: Sec 15
 Committing or threatening to commit any act
forbidden by the IPC with an intention to cause any
person to enter into an agreement.
 The unlawful detaining or threatening to detain, any
property with an intention to cause any person to
enter into an agreement.
 The act constituting coercion, may be directed at
any person & not necessarily at the other party to
the agreement.
 It does not matter whether the IPC is or is not in
force where the coercion is employed. If suit is filed
in India the said provision will apply.
Effects of Coercion:
 Voidable
 Sec 64
 The party exercising coercion exposes himself
to criminal liability under the IPC, besides an
action in contract.
 Burden of proof lies on the party who wants to
set aside the contract on the plea of coercion.
Undue Influence: Sec 16
 A contract is said to be induced by
undue influence when the relation
subsisting between the parties is such
that one of the parties is in a position
to dominate the will of the other and
he uses this position to obtain an
unfair advantage over the other.
Presumption of Undue
Influence:
 In the following cases undue influence is presumed to exist &
the burden of proof lies on the party who is in a position to
dominate the will of the other:
 The person holds a real or apparent authority over the other,
e.g., master & servant, police officer & accused.
 Fiduciary relationship e.g., father & son, doctor & patient.
 The contracting parties mental capacity is temporarily or
permanently affected due to age, illness, mental or bodily
distress, e.g., old illiterate persons.
Contd..
 Undue influence implies mental & moral coercion in such
a way that the consent given is not free.
 The person in a position to dominate the will of the other
need not be a party to the contract or be benefited by the
contract; it is sufficient if the third party benefits as long
as he is interested in the third party.
 Unreasonable bargains, high prices, high rate of interest
etc are instances of circumstances when undue influence
is presumed.
No presumption of
undue influence:
 In the following cases law does not presume
undue influence & the burden of proof lies on
the party alleging that undue influence
existed:
 Mother & daughter
 Grandson & grandfather
 Husband & wife
 Creditor & debtor
 Landlord & tenant.
Effects of Undue
Influence:
 Voidable
 Sec. 64: Court has the discretion to direct
the aggrieved party to refund the benefit in
part or in whole or set aside the contract
without any direction for refund of benefit.
 There is no criminal liability in case of undue
influence.
Misrepresentation:
 A representation means a statement of fact made
by one party to the other either before or at the
time of contract, relating to some matter essential
to the formation of the contract, with an intention to
induce the other party to enter into a contract.
 It may be expressed by words spoken or written or
implied from the acts or conduct of the parties.
 In law, a representation when wrongly made
without an intention to deceive the other party is
known as misrepresentation.
Sec 18:
 Positive assertion of unwarranted statements of material
facts believing them to be true.
 Where a statement when made was true but
subsequently before it was acted upon, it became false to
the knowledge of the person making it , then a duty is
cast upon the person to disclose the change of
circumstances to the other party.
 Causing mistake about the subject matter innocently.
Effects of
misrepresentation:
 Voidable
 May choose to rescind the contract or
 Affirm the contract & insist that he be put in
a position in which he would have been, if
the representation made had been true.
 The remedy is lost if the other party had
sufficient means of discovering the truth
with ordinary diligence.
Fraud: Sec 17
 Fraud means & includes any of the following acts committed
by a party with an intention to deceive or induce the other
party to enter into a contract:
1. A false statement made intentionally is fraud
2. Active concealment of a material fact by a person having
knowledge of the fact is fraud. However, mere non-disclosure
is not a fraud, if there is no duty to disclose.
3. A promise made without an intention of performing it.
4. Any cat or omission declared by law to be fraudulent.
5. Any other act fitted to deceive.
Silence & fraud:
 Mere silence as to facts likely to affect the
willingness of a person to enter into a
contract is not fraud, unless:
1. Such a person is under a duty to speak or
2. Silence is in itself equivalent to speech.
Effects of fraud:
 Right to rescind the contract.
 Affirm the contract and ask for restitution,
i.e., to be put in a position, he would have
been, if the statement made had been true.
 The aggrieved party can also claim
damages.
 Fraud by a stranger to the contract does not
affect the contract.
Action for fraud:
 Fraudulent statement must be instrumental in inducing
the party to enter into a contract.
 The plaintiff must have been actually deceived by the
fraudulent statement.
 No action will lie if the plaintiff does not sustain any loss
or injury.
 The contract is not Voidable if the party had enough
means at its disposal to discover the truth with ordinary
diligence.
Loss of right of
rescission:
 Affirmation: where the aggrieved party after becoming
aware of his right to rescind the contract, chooses to
affirm it, either by express words or through his conduct,
which shows an intention to affirm it, loses his right to
rescind the contract.
 Restitution not possible: where the party seeking to
rescind the contract is not in a position to restore the
benefits received under the contract, cannot exercise his
right of rescission.
Contd..
 Lapse of time: where the aggrieved party fails to
exercise his right of rescission promptly, may lose
his right to rescind the contract.
 Right of third parties: where third parties acquire
bona fide rights in the subject matter of the
contract, before it can be rescinded, then such
rights are valid against the aggrieved party and the
right to rescind will no longer be available.
Mistake:
 Mistake of law:
1. Mistake of law of the country.
2. Mistake of foreign law.

 Mistake of fact:
1. Bilateral mistake
2. Unilateral mistake
Mistake of law:
 Mistake of law does not give right to the parties to
set aside the contract & hence such a contract is
not Voidable. This is based on the maxim
“Ignorantia juris non-excusat” . Hence no relief
can be granted on the grounds of mistake of law.
 However, if one of the parties makes a mistake of
law, through the inducement, whether innocent or
otherwise, of the other party, then the contract
may be avoided.
Mistake of foreign law:
 Mistake of foreign law stands on the
same footing as mistake of fact. Here
the agreement is void in case of
bilateral mistake only.
Bilateral mistake:
 Where the parties to an agreement
misunderstood each other & are at cross
purposes, there is a bilateral mistake.
 In this case there is no agreement as there is no
consensus and hence the agreement is void.
 In case of bilateral mistake of an essential fact,
the agreement is void ab initio.
Essentials of bilateral
mistake:
 The mistake must be mutual, i.e., both the
parties must misunderstand each other so
as to nullify consent.
 Mistake must relate to some fact and not
an opinion.
 The fact must be essential to the
agreement: mistake as to the existence,
identity, title, quantity, quality of the
subject-matter of the contract.
 Unilateral mistake:
 Where only one of the contracting parties is under a
mistake, as to the matter of fact essential to the contract, it
is a unilateral mistake.
 In case of unilateral mistake the contract is:
1. Valid: if the mistake is caused due to ones own neligence or
lack of reasonable care.
2. Voidable: if the mistake is caused by fraud,
misrepresentation, etc.
3. Void ab initio: where the mistake is with regard to the
identity of a person & where such identity is crucial to the
agreement or the mistake is with regard to the nature of a
written document
Lawful object &
consideration
 ‘Object’ means the design or purpose of the
contract.
 ‘consideration’ is said to be unlawful if it involves an
act or price which is unlawful.
 “Illegal” or “unlawful’” means a transaction not
enforceable by courts. It does not necessarily refer
to a punishable offence, unless it is expressly
punishable by any criminal or special legislation.
 Circumstances under which
object & consideration is held
to be unlawful:
 Forbidden by law: an object or consideration is
said to be forbidden by law when it is a
punishable by the criminal law of the country or
by any special legislation or regulation made by a
competent authority under the powers derived
from the legislature.
 If it is of such a nature that, if permitted it would
defeat the provisions of any law, that is it would
indirectly lead to the violation of law.
 If it is fraudulent.
Contd..
 Where it implies or involves injury to
the person or property of another.
 If court regards it as immoral:
immorality extends to:
1. Sexual immorality
2. Furtherance of sexual immorality
3. Interference with marital relations
4. Acts against good public morals.
 Contd..
 If court regards it as opposed to public policy:
public policy is an illusive concept & is generally
governed by precedents. Some of the following cases
have been held to be opposed to public policy:
1. Trading with an alien enemy: as such trading tends to
aid the economy of the enemy country and is hence
considered unlawful. However such contracts can be
entered into with the special permission of the govt.
 Contd..
2. An agmt. interfering with the course of justice
3. Agmts. for stifling criminal prosecution: any agmt. which seeks
to prevent the prosecution of a guilty party is opposed to
public policy & hence void. The court cannot give effect to an
agmt. Which attempts to take away the administration of law
out of the hands of the judges & put it in the hands of private
individuals. However there is an exception in cases of certain
compoundable offences under the CrPC which can be
compromised & agmts. For the compromise of such offences is
valid.
 Contd..
4. Traffic in public offices: an agmt. for sale or transfer of
public offices or appointments to such offices in
consideration of money is void; cause if permitted it would
result in inefficiency & corruption.
5. Agmts creating an interest opposed to duty.
6. Agmts unduly restraining personal liberty.
7. Agmts interfering with parental duties
8. Agmts which tend to create monopolies.
 Object or consideration
unlawful in part:
 Where an agmt contains several distinct promises to
do certain legal things & also certain illegal things;
then, if the legal part cannot be separated from the
illegal part, i.e., there is a single consideration for
several distinct promises, then the entire agmt is
treated as illegal & hence void.
 Where there is separate consideration for distinct
promises & the legal part can be separated from the
illegal part, then the legal part is valid contract &
hence enforceable.
Contd..
 In the case of alternative promises, where one
branch is legal & the other branch is illegal, then
the legal branch alone can be enforced.
 Transactions which are collateral or incidental to
illegal contracts are also tainted with illegality &
therefore not enforceable, provided the parties to
the collateral transactions had knowledge of the
illegal design of the primary agmt.
Effects:
 Void
 No restitution.
Void Agreements:
 Agreements in restraint of marriage [Sec. 26]
 Agreements in restraint of trade [Sec. 27]
 Agreements in restraint of legal proceedings [Sec. 28]
 Agreements the meaning of which is uncertain [Sec. 29]
 Agreements by way of wager [Sec. 30]
 Agreements contingent on impossible events [Sec. 36]
 Agreements to do impossible acts [Sec. 56]
 Void Agreements:
 Agreements in restraint of marriage [Sec 26]:
Exception : an agreement restraining the marriage of a minor is valid.
 Agreements in restraint of trade [Sec 27]: any kind of restraint of
trade, whether reasonable or not is void; however agreements restraining
freedom of action necessary for carrying on a business are not void.
Exception: Sale of goodwill (provided the restraint is reasonable in case
of time & space), partners agreements, trade combinations, negative
stipulation in service agreements.
 Contd..
 Agreements in restraint of legal proceedings [Sec 28]:
i. A party absolutely restricted from taking usual legal proceedings
, in respect of any rights arising from a contract.
ii. An agreement which limits the time within which a party can
enforce his rights under a contract, without regard to the time
allowed by the Limitation Act.
iii. An agreement which provides for forfeiture of any rights arising
from a contract, if suit is not brought within a specified period,
without regard to the time allowed by the Limitation Act.
Contd..
 Agreements the meaning of which is
uncertain [Sec 29].
 Agreements by way of wager [Sec 30]:
The term ‘wager’ means a ‘bet. The essence of
a wagering agreement is that, one party is to
win & the other to lose upon a future event,
which at the time of contract is of an uncertain
nature. If the event turns out one way ‘A’ will
lose & if it turns out the other way ‘A’ will win.
Essentials of wager:
1. There must be a promise to pay money or money’s
worth.
2. The promise must be conditional on an event
happening or not.
3. The event must be an uncertain one. If one of the
parties has the event in his own hands, then it is not
a wager.
4. Each party must stand to win or lose under the
terms of agreement.
5. No party must have proprietary interest in the event.
The stake must be the only interest which the
parties have in the agreement.
Exception:
 “This sec. shall not be deemed to render
unlawful a subscription, or contribution,
or an agmt. to subscribe or contribute,
made or entered into for or toward any
plate, prize or sum of money, of the value
or amount of 500 rupees or upwards, to
be awarded to the winner or winners of
any horse race.”
 Agreements contingent on
impossible events: [Sec.
36]
 Such contracts can be performed only if the contemplated
event takes place. The performance of the contract depends on
the happening or non-happening of an event. Such an event
should be of an uncertain nature. The event must be incidental
to the contract, there should be a direct correlation between
the event & performance of the contract. If the event becomes
impossible, the contract becomes void.
 If the contingent contract is to be performed within a stipulated
time & if the contingent event does not take place within the
stipulated time, the contract becomes void.
Agreements to do
impossible acts: [Sec 56]
 An agreement to do an act impossible
in itself is void.
Effects:
 Void
 No restitution : no restoration of
benefit received is allowed in the case
of agreements, expressly declared
void under the Indian Contract Act.
 Quasi contracts: [Sec
68-72]
 In case of quasi contracts there is no offer,
acceptance or consensus; in fact there is no intention
on the part of either parties to enter into a contract;
still the law, from the conduct & relationship
between the parties, implies a promise, imposing
obligation on one party & conferring a right in favor
of the other party. Thus under certain special
circumstances, obligations resembling those created
by a contract are imposed by law although the
parties have never entered into a contract.
Doctrine of unjust
enrichment:
 A quasi contract rests upon the doctrine of
unjust enrichment which declares that a
person shall not be allowed to enrich
himself unjustly at others expense.

 A suit for damages for the breach of

contract can be filed in the case of a quasi
contract in the same manner as in the case
of a completed contract.
Quasi-contractual
obligations:
 A claim for necessaries supplied to a person incapable of
contracting [Sec. 68]
 A person who is interested in the payment of money (in
order to protect his own interest), which another person
is bound by law to pay, and who therefore pays it, is
entitled to be reimbursed [Sec. 69]
 Obligation of person enjoying non-gratuitous act [Sec.
70] : the act must have been done lawfully in good faith;
the act must be non-gratuitous & the person for whom
the act is done must have enjoyed benefit of the act.
Contd..
 Responsibility of finder of goods [Sec.
71]: law implies an agreement
between the owner & the finder of
goods. It casts duties upon the finder
of the goods.
 Liability of a person to whom money
is paid, or goods delivered by mistake
or under coercion [Sec. 72]
Contingent Contracts:
[Sec. 31]
 It is a contract, the performance of which depends upon,
the happening or non-happening of an uncertain event,
collateral to such a contract.
 A collateral event is one which does not form part of the
consideration of the contract, and is independent of it.
 An ordinary contract can be converted into a contingent
contract, if its performance is made dependent on the
happening or non-happening of an uncertain event,
collateral to such contract.
Essentials of contingent
contract:
 The performance of such a contract
depend on the happening or non-
happening of a future uncertain
event.
 The future uncertain event is
collateral or incidental to the contract.
Rules regarding
performance of contingent
contracts:
 Contingent contracts to do or not to do any thing, if
an uncertain future event happens, cannot be
enforced by law unless & until the uncertain event
occurs. Where such an event becomes impossible,
such contracts become void.
 Contingent contracts to do or not to do any thing, if
an uncertain future event does not happen, can be
enforced when the happening of that event becomes
impossible & not before.
 Contd..
 Contingent contracts to do or not to do any thing, if a
specified uncertain event happens within a fixed
time, becomes void, if, at the expiration of the time
fixed, such event has not occurred or before the time
fixed, such event becomes impossible.
 Contingent contracts to do or not to do any thing, if a
specified uncertain event does not happen within a
fixed time, may be enforced by law when the time
fixed has expired & such event has not occurred, Or,
before the time fixed has expired, it becomes certain
that such event will not happen.
Performance of contract:
 Under a contract legal obligations are created, which
both the parties to a contract are under a duty to
fulfill. Fulfilling of such legal obligations, or
performance of the promise under a contract by both
the parties is known as performance of a contract.
 Performance of all the obligations arising out of a
contract, by all the parties to a contract is the normal
& natural mode of discharging a contract.
 Rules regarding performance:
 Only the promisee can demand performance of the
promise under a contract, a third party cannot demand
performance, even though it was made for his benefit.
 A contract involving personal skill, taste etc., must be
performed by the promisor itself. Where it appears from
the nature of the contract, that the parties intend that the
promise of the contract should be performed by the
promisor itself; then it must be performed by the
promisor only.
 Contd..
 Where a contract is of an impersonal nature, then
either the promisor himself or his agent may perform
the contract.
 Where death of the promisor occurs, before the
performance of the contract, then in such case the
liability of performance falls on his legal
representatives; unless a contrary intention appears
from the contract.
 Where a promisee accepts performance of the promise
from a third person, however afterwards he cannot
enforce it against the promisor.
Performance of joint promises:
 Where several joint promisor’s with a single
promisee.
 Where a single promisor makes a promise with
several joint promisee’s.
 Where several joint promisor’s make a promise
with several joint promisee’s .
Rules regarding joint promises:
 Unless a contrary intention appears from the contract,
the right to claim performance rests with all the
promisees jointly & a single promisee cannot claim
performance.
 Unless a contrary intention appears from the contract,
all promisors must jointly fulfill the promise.
 In the absence of an express agmt. to the contrary, the
promisee is entitled to compel any one or more of the
joint promisors to perform the whole of the promise.
 Contd..
 Where one of the joint owners is made to perform the whole
contract, he may realize equal contribution from other joint
promisors, unless a contrary intention appears from the contract.
 Where any one of the joint owners fails to make a contribution,
then the remaining joint promisors must bear the loss arising
from such failure, in equal shares.
 In case of a joint promise, if one of the joint promisors is released
from his liability by the promisee, his liability to the promisee
ceases, but this does not discharge the other promisors from their
liability; neither does it free the joint promisor so released from
his liability to contribute to the other joint promisors.
 Assignment of contracts:
 Assignment of contract means transfer of the
rights & liabilities arising under a contract, to
third party, with or without concurrence of the
other party to the contract.
 An assignee can bring an action on his own
initiative, against the other party, without making
the assignor a party to the suit.
 Contracts involving personal skill, taste etc.,
cannot be assigned.
Time & place for performance:
 Where time & place is prescribed by the
promisee, the performance of the contract
must be at the specified time & place.
 Where it is not prescribed, then it must be
within a reasonable time & at a proper place
 Failure to perform within stipulated
time:
 Where time is the essence of the contract & there is a
failure to perform a contract within the stipulated time,
the contract becomes voidable at the option of the
promisee.
 Where the promisee chooses to affirm the delayed
contract, cannot claim compensation for the loss caused
by the delay afterwards, unless, at the time of affirming
the delayed performance, he has given notice to the
promisor of his intention to do so.
Contd..
 Where time is not the essence of the contract,
failure to perform the contract within the
specified time does not render the contract
voidable. However the promisee is entitled to
claim compensation for any loss caused to
him by the delay. However, if the promisor
delays the performance beyond reasonable
time then the contract will become voidable
at the option of the promisee.
Mode of performance:
 The promise must be performed by the promisor
in the manner prescribed by the promisee. Such
performance must be in strict accordance with
the mode prescribed.
 Contracts which need not
be performed:
 If parties to a contract agree to ‘alteration’, ‘novation’ or
‘rescission’ , the original contract need not be
performed.
 Where the parties to a contract agree to remit the
performance of the promise, either wholly or in part, the
original contract stands discharged.
 In case of a Voidable contract, if the party who has the
option, chooses to rescind the contract, then the other
party need not perform his promise.
Contd..
 Where there is neglect or refusal to
provide the promisor with reasonable
facilities for the performance of his
promise, by the promisee; then in such
a case the promisor is excused for the
non-performance of the contract.
Discharge of contract:
 Discharge of a contract refers to a
process, by which the rights and
obligations arising out of a contract come
to an end. Thus, discharge of a contract
means termination of a contract.
 A contract may be discharged in any of
the following ways:
Contd..
1. By performance
2. By mutual consent or agreement
3. By subsequent or supervening
impossibility or illegality
4. By lapse of time
5. By operation of law
6. By breach of contract.
 Discharge by mutual consent or
agreement:
 Novation: when a new contract is substituted for an
existing contract, either between the same parties or
different parties, the consideration for such contract being
the discharge of the old contract.
 Where the contract is between same parties, then the
nature of the obligations must be altered substantially or
else it shall amount to alteration & not novation.
 Novation cannot be compulsory, it has to be with the
mutual consent of all the parties.
 The new contract must be valid & enforceable, if it suffers
from any legal flaw, then the original contract shall revive.
Alteration:
 Alteration of a contract refers to change in one or
more of the material terms of a written contract.
 Where such alteration takes place with mutual
consent, then the original contract is discharged &
the new altered contract comes into existence.
 The alteration should be material & alter the legal
effect of the contract, mere correction of clerical
errors does not amount to alteration.
Contd..
 Where such alteration is made by one party,
without the consent of the other party, then such
alteration will render the entire contract void &
none of the parties can maintain an action upon
it.
 Unlike novation, here there is no change of
parties, the parties to the contract remain the
same, only the material terms of the contract
are altered.
 Rescission:
 Rescission of a contract means cancellation of an
existing contract without substituting a new contract
in its place.
 A contract is said to be discharged by rescission,
when the parties come to an agreement, before the
date of performance, that the contract is no longer
binding on them.
 The consideration for such an agreement is
abandonment of their respective rights under the
contract, thus releasing each other of their
contractual obligations.
Contd..
 An agmt. for rescission of contract is to be
distinguished from agmts in restraint of legal
proceedings which are void under the Act. An
agreement for rescission is an agmt. out of
mutual consent to excuse performance of
contractual obligations. Thus, an agmt to
excuse performance is valid, where as an agmt
not to sue for breach is void.
Remission:
 It is the acceptance of a lesser sum or
lesser fulfillment of the promise made.
 A promisee may remit either entire or a part
of the promise made to him and a promise
to do so is binding even though there is no
consideration for it.
 An agmt to extend the time for the
performance of the promise does not require
consideration either.
Waiver:
 The deliberate abandonment of a right
which a party has acquired under the
contract, where upon the other party is
released from his obligation is ‘waiver’.
Subsequent impossibility or illegality:
 A contract to do a particular act, which becomes
impossible or illegal, due to an event which the
promisor could not prevent, becomes void and
stands discharged.
 The impossibility should be beyond the control of
the promisor and not be self induced.
 In order to render an act impossible, it is sufficient
if it has become impractical, useless or extremely
hazardous.
Cases not covered under supervening
impossibility:
 Difficulty of performance: increased difficulty or
expense.
 Commercial impossibility: when actual loss
becomes certain.
 Default of third party: failure on the part of a third
party on whom the promisor relied.
 Strikes & lock-outs: the former is manageable & the
latter is self-induced.
 Failure of one of the objects
Lapse of time:
 Where time is the essence of contract & one of
the party fails to perform his promise within the
stipulated time, the other party is discharged
from performing his promise & can claim
damages.
 Where there is failure to perform the promise by
both parties to the contract for a long period, the
contract stands discharged.
 Operation of law:
 Death: contracts involving personal skill or of a
personal nature, stand discharged with the death of
the promisor.
 Insolvency: when the insolvency court passes an
order of discharge, the contract stands discharged.
 Merger: where an inferior right contract merges with
a superior right contract, the former stands
discharged automatically.
 Unauthorized material alteration: renders the
contract void and hence it stands discharged.
Breach of contract:
 Breach of contract brings an end to the
obligations arising out of a contract, and
hence the contract stands discharged.
 The aggrieved party can sue for damages.
 Breach of contract may be anticipatory or
actual.
 Anticipatory breach:
 Such a breach occurs before the time stipulated for
performance has arrived.
 Anticipatory breach may be express or implied.
 The aggrieved party may sue the other party for
breach, immediately or wait until the due date
arrives and then sue.
 Where he chooses to wait until the due date, the
contract remains in operation and the other party
may either perform his part of the contract or take
advantage of any supervening impossibility.
Actual breach:
 Actual breach occurs when a party fails to
perform his obligations upon the date fixed
for performance of contract.
 There can be no actual breach so long as
the time for performance has not yet
arrived.
 The aggrieved party may sue for damages.
Remedies for breach of contract:
 Rescission of contract
 Suit for damages
 Suit upon quantum meruit
 Suit for specific performance
 Suit for an injunction
Suit for damages:
 Monetary compensation awarded to the aggrieved
party for the loss suffered by him, caused by the
breach of contract by the other party is known as
‘damages’.
 The award of damages is based on the principle
of compensation & not punishment.
 The purpose of damages is to put the injured
party in the position he would have been, had
there been no breach.
Contd..
 Damages are awarded to the aggrieved party only
if actual loss is proved.
 The loss suffered must not be remote or an
indirect result of the breach.
 While estimating the loss caused to a party by
breach, the inconvenience caused should also be
considered.
 Special damages should also be taken into
account.
Kinds of damages:
 Ordinary or compensatory damages
 Special damages
 Exemplary or punitive damages
 Nominal damages
Ordinary Damages:
 Ordinary damages are restricted to direct or
proximate consequences of breach of
contract.
 They arise naturally & directly in the usual
course of things from breach of contract.
 Remote & indirect losses are not considered.
 Special damages:
 They arise on account of special or unusual circumstances
affecting the plaintiff.
 They are remote in nature & not the natural & probable
consequence of breach.
 Such damages cannot be claimed as a matter of right, they can
be claimed only if the special circumstances which would result
in special loss in case of breach are brought to the notice of the
other party.
 Such damages must be in contemplation of the parties at the
time of entering the contract, subsequent knowledge of the
special circumstances will not create any special liability on the
guilty party.
Vindictive & exemplary:
 The purpose of such damages is to punish the
guilty party for breach.
 The cardinal principle of contract law is that in
case of breach of contract, damages are awarded
to the aggrieved party, to compensate for the loss
suffered and not to punish the guilty party.
 Exemplary damages are hence not recoverable
for the breach of contract, as a general rule;
however there are two exceptions to this rule.
Exceptions:
 Breach of a contract to marry: damages
depend upon the extent of injury to party’s
feelings.
 Dishonor of a cheque by a banker when
there are sufficient funds to the credit of the
customer: the smaller the amount of
cheque, greater the amount of damage.
Nominal damages:
 Such damages are awarded for namesake.
They are neither awarded by way of
compensation to aggrieved party nor by
way of punishment to the guilty party.
 Such damages are awarded only to
establish that a right has been violated by
the breach of contract & the aggrieved
party has not suffered any actual damage,
i.e., it is of insignificant value.
Duty to mitigate damages:
 It is the duty of the aggrieved party to mitigate the
damages suffered.
 He must use all reasonable means of mitigating
the damage and act prudently.
 He cannot recover any part of damage traceable
to his own neglect to mitigate.
 The burden of proof however, is on the defendant
to show that the plaintiff failed in his duty of
mitigation.
Liquidated damages & penalty:
 Liquidated damages means a sum fixed in
advance, which is a fair & genuine pre- estimation
of the probable loss likely to result from breach.
 Penalty means a sum fixed in advance, which is
extravagant & unconscionable in amount in
comparison with the greatest loss that could
conceivably be proved to have followed from
breach.
Sec 74:
 It lays down that the courts are not bound to treat
the sum mentioned in the contract (either
liquidated damages or penalty) as the sum
payable for damages for breach.
 The courts allow reasonable compensation to
cover actual loss sustained, not exceeding the
amount mentioned in the contract.
 The amount mentioned in the contract, regardless
whether it is liquidated damages or penalty,
determines only the maximum limit of liability, in
case of breach of contract.
Exception:
 When any person enters into any bail bond
or other instrument of a similar nature, or
under any provision of any law or under the
orders of the govt., gives any bond for the
performance of any public duty, he shall be
liable to pay the whole amount, mentioned
therein upon breach of condition of any
such instrument.
Stipulation regarding payment of
interest:
 Unless the parties have made a stipulation for the
payment of interest, interest cannot be recovered
legally as damages, as a general rule.
 Where the rate of interest is reasonable, the may
allow it, if it is exorbitant, court may treat it as a
penalty clause & disallow it.
 Payment of compound interest is allowed only if it
is at a reasonable rate.
 Suit upon Quantum meruit:
 The term Quantum Meruit means “ in
proportion to the work done”.
 A suit for quantum meruit is generally filed
in the following cases:
1. Where work has been done in pursuance of
a contract, which has been discharged due
to the default of the defendant. In such a
case, generally, damages & payment of
quantum meruit is allowed.
Contd..
2. Where work has been done in pursuance of the
contract, discovered to be void or becomes void,
provided the contract is divisible.
3. Restitution
4. A party which has committed breach of contract
may also sue on a quantum meruit, provided
both the following conditions are fulfilled:
a) The contract must be divisible
b) The other party has enjoyed the benefit of the
part which has been performed, although there
was an option of declining it.
Suit for specific performance:
 Specific performance means the actual carrying
out of the contract as agreed.
 Such a suit is filed in the court, in order to obtain a
decree from the court, directing the defendant to
actually perform the promise made.
 Such a suit may be filed in addition to a suit for
damages.
 Such a decree is not granted for contracts of
every description, it is granted only in cases
where the legal remedy is inadequate or
defective.
Specific performance not granted in
the following cases:
 Where monetary compensation is an
adequate relief.
 Where court cannot supervise the actual
execution of the contract.
 Where contract is for personal services.
Suit for an injunction:
 It is an order of a court restraining a person from
doing a particular act.
 Injunction is a preventive remedy and is
appropriate in case of anticipatory breach of
contract, where damages would not be an
adequate relief.
 When a court issues an injunction order, it
restrains the defaulting party from committing an
act, which he promised not to do under the
contract.
BEST OF LUCK FOR YOUR EXAMS