INDIAN CONTRACT ACT, 1872 NOTES (PART I)

INDIAN CONTRACT ACT, 1872 NOTES (PART I)

INTRODUCTION

Contract, in the simplest definition means a promise enforceable by law. The promise may be to do something or to refrain from doing something. The making of a contract requires the mutual assent of two or more persons, one of them ordinarily making an offer and another accepting. If one of the parties fails to keep the promise, the other is entitled to legal redress. The law of contracts considers such questions as whether a contract exists, what the meaning of it is, whether a contract has been broken, and what compensation is due the injured party.

HISTORICAL DEVELOPMENT-

Contract act is one of the principal Acts governing all the contractual relations not only in the business world but also from day to day life. It is one of the most important legislation ever drafted by Britishers and the principles enacted therein are nothing but the codification of the general principle governing transactional relationship because of which it has seen seldom amendments.

The basic principle of contract law remained the same throughout the world only certain technicalities remain different. Before the act was enacted, the contractual relationship was governed by the personal laws of different religious communities like different laws for Hindus and Muslims. Also at that time, Britishers had their own law to govern to, but because of the presence of so many divergent laws, it created confusion in implementation of the contract & in case, of if any dispute arises between the parties. So to promote business transactions, contract act was enacted to make business transactions more convenient

CONTRACT AND ITS ESSENTIAL ELEMENTS

A contract is an agreement made between two (or) more parties which the law willenforce.”

Definition: According to section 2(h) of the Indian contract act, 1872. “An agreement enforceable by law is a contract.

According to SALMOND, a contract is “An agreement creating and defining obligations between the parties”

Essential elements of a valid contract:

According to section 10, “All agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object and not here by expressly declared to be void”

In order to become a contract an agreement must have the following essential elements, they are follows:-

1) Offer and acceptance:

• To constitute a contract there must be an offer and an acceptance of that offer.

• The offer and acceptance should relate to same thing in the same sense.

• There must be two (or) more persons to an agreement because one person cannot enter into an agreement with himself.

2) Intention to create legal relationship:

• The parties must have intention to create legal relationship among them.

• Generally, the agreements of social, domestic and political nature are not a contract.

• If there is no such intention to create a legal relationship among the parties, there is no contract between them.

Example: BALFOUR (vs) BALFOUR (1919)

Facts: A husband promised to pay his wife a household allowance of L 30 (pounds) every month. Later the parties separated and the husband failed to pay the amount. The wife sued for allowance.

Judgment: Agreements such as there were outside the realm of contract altogether. Because there is no intention to create legal relationship among the parties.

3) Free and Genuine consent:

• The consent of the parties to the agreement must be free and genuine.

• Free consent is said to be absent, if the agreement is induced by a)coercion, b)undue influence, c)fraud, d)Mis-representation, e)mistake.

4) Lawful Object:

• The object of the agreement must be lawful. In other words, it means the object must not be (a) Illegal, (b) immoral, (c) opposed to public policy.

• If an agreement suffers from any legal flaw, it would not be enforceable by law.

5) Lawful Consideration:

• An agreement to be enforceable by law must be supported by consideration.

• Consideration means “an advantage or benefit” moving from one party to other. In other words “something in return”.

• The agreement is enforceable only when both the parties give something and get something in return.

• The consideration must be real and lawful.

6) Capacity of parties: (Competency)

• The parties to a contract should be capable of entering into a valid contract.

• Every person is competent to contract if

(a). He is the age of majority.

(b). He is of sound mind and

(c). He is not dis-qualified from contracting by any law.

• The flaw in capacity to contract may arise from minority, lunacy, idiocy, drunkenness, etc..,

7) Agreement not to be declared void:

• The agreements must not have been expressly declared to be void u/s 24 to 30 of the act.

Example: Agreements in restraint of trade, marriages, legal proceedings, etc..,

8) Certainty:

• The meaning of the agreement must be certain and not be vague (or) indefinite.

• If it is vague (or) indefinite it is not possible to ascertain its meaning.

Example: ‘A’ agrees to sell to ‘B’ a hundred tones of oil. There is nothing whatever to show what kind of a oil intended. The agreement is void for uncertainty.

9) Possibility of performance:

• The terms of an agreement should be capable of performance.

• The agreement to do an act impossible in itself is void and cannot be enforceable.

Example: ‘A’ agrees with ‘B’, to put life into B’s dead wife, the agreement is void it is impossible of performance.

10) Necessary legal formalities:

• According to Indian contract Act, oral (or) written are perfectly valid.

• There is no provision for contracting being written, registered and stamped.

• But if is required by law, that it should comply with legal formalities and then it should be complied with all legal (or) necessary formalities for its enforceability.

TYPES OF CONTRACT

According to section 2(h) of the Indian contract act, 1872. “An agreement enforceable by law is a contract. According to SALMOND, a contract is “An agreement creating and defining obligations between the parties”

Kinds of contracts: - Contracts may be classified according to their (a) validity, (b) Formation, and(c) Performance.

(a)Classification according to validity:-

1. A valid contract: A valid contract is an agreement which is binding and enforceable. An agreement becomes a contract when all the essential elements (i.e.., offer and acceptance, intention to create legal relationship etc..,) are present, in such a case the contract is said to be valid.

2. A voidable contract: An agreement which is enforceable by law at the option of one (or) more parties thereto, but not at the option of the other (or) others, is a voidable contract. This happens when the essentials elements of a free consent is missing. When the consent of a party to a contract is said to be not free, if it is caused by Coercion, Undue influence, Misrepresentation (or) fraud, etc..,

3. A void contract: A void contract is really not a contract at all. The term “void” means an agreement which is without any legal effect. In other words “an agreement not enforceable by law is said to be void”.

4. Illegal contracts: Some agreements are illegal in themselves (ex:- contracts of immoral nature, opposed to public policy etc..,) Thus, All illegal contracts are void but all void contracts are not illegal (ex:- A wagering agreement, though void is not illegal).

5. An 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 writing (or) where the remedy has been barred by lapses of time.

(b) Classification according to their formation:-

1. Express contract: An express contract is one, the terms of which are stated in words, spoken (or) written at the time of the formation of the contract.

2. Implied contract: An implied contract is one in which the evidence of the agreement is shown by acts and conduct of the parties, but not by words, written (or) spoken. In other words where the offer (or) acceptance of any promise made otherwise then in words, the promise is said to be implied promise (or) implied contract.

3. Quasi-contract: In truth Quasi-contract is not a contract at all. A quasi-contract is acts which are created by law. It does not have any essential elements of a valid contract. It is not intentionally created by parties but it is imposed by law. It is founded upon the ‘principles of natural justice, equity and fair play’.

(c) Classification according to their performance:

1. Executed contract: “Executed” means that which is done. An executed contract is one in which both the parties have performed their respective obligation.

2. Executory contract: “Executory” means that which remains to be carried into effect. An executor contract is one in which the parties have yet to perform their obligations.

3. Unilateral (or) one-sided contract: in this type of contract, one party to a contract has performed his part even at the time of its formation and an obligation is outstanding only against the parties.

4. Bilateral contract (or) Two-sided contract: It is a contract in which the obligations on the part of both the parties to the contract are outstanding at the time of the formation of the contract.

OFFER OR PROPOSAL AND ITS ESSENTIAL ELEMENTS FOR VALID OFFER OR PROPOSAL

According to section 2(a) of Indian contract act, 1872, defines offer as “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 otherto, such act (or) abstinence, he his said to make a proposal”.

Legal rules (OR) Essential elements of a valid offer / proposal:-

1) Offer must be capable of creating legal relations: A social invitation, even if it is accepted does not create legal relationship because it is not so intended to create legal relationship. Therefore, an offer must be such as would result in a valid contract when it is accepted.

2) Offer must be certain, definite and not vague: If the terms of the offer are vague, indefinite, and uncertain, it does not amount to a lawful offer and its acceptance cannot create any contractual relationship.

3) Offer must be communicated: An offer is effective only when it is communicated to the person whom it is made unless an offer is communicated; there is no acceptance and no contract. An acceptance of an offer, in ignorance of the offer can never treated as acceptance and does not create any right on the acceptor.

Example: LALMAN SHUKLA (VS) GAURI DATT. (1913)

Facts: ‘S’ sent his servant, ‘L’ to trace his missing nephew. He then announced that anybody would be entitled to a certain reward. ‘L’ traced the boy in ignorance of his announcement. Subsequently, when he came to know of his reward, he claimed it.

Judgment: He was not entitled from the reward.

4) Offer must be distinguished from an invitation to offer: A proposer/offer must be distinguished from an invitation to offer. In the case of invitation to offer, the person sending out the invitation does not make any offer, but only invites the party to make an offer. Such invitations for offers are not offers in the eyes of law and do not become agreement by the acceptance of such offers.

Example: Pharmaceutical society of great Britain (vs) Boots cash chemists (1953).

Facts: Goods are sold in a shop under the ‘self service’ system. Customers select goods in the shop and take them to the cashier for payment of price.

Judgment: The contract, in this case, is made, not when a customer selects the goods, but when the cashier accepts the offer to buy and receives the price.

5) Offer may be expressed (or) implied: An offer may be made either by words (or) by conduct. An offer which is expressed by words (i.e.., spoken or written) is called an ‘express offer’ and offer which is inferred from the conduct of a person (or) the circumstances of the case is called an ‘implied offer’.

6) Offer must be made between the two parties: There must be two (or) more parties to create a valid offer because one person cannot make a proposal/offer to himself.

7) Offer may be specific (or) general: An offer is said to be specific when it is made to a definiteperson, such an offer is accepted only by the person to whom it is made. On the other hand general offer is one which is made to a public at large and maybe accepted by anyone who fulfills the requisite conditions.

Example: Carilill (vs) Carbolic Ball company (1893).

Facts: A company advertised in several newspapers is that a reward of L 100 (pounds) would be given to any person contracted influenza after using the smoke ball according to the printed directions. Once Mr.Carilill used the smoke balls according to the directions of the company but contracted influenza.

Judgment: she could recover the amount as by using the smoke balls she accepted the offer.

8) Offer must be made with a view to obtaining the assent: A offer to do (or) not to do something must be made with a view to obtaining the assent of the other party addressed and it should not made merly with a view to disclosing the intention of making an offer.

9) Offer must not be statement of price: A mere statement of price is not treated as an offer to sell.

Therefore, an offer must not be a statement of price.

Example: HARVEY (VS) FACEY (1893):

Facts: Three telegrams were exchanged between Harvey and Facey.

(a) “Will you sell us your Bumper hall pen? Telegram lowest cash price- answer paid”. [Harveyto Facey].

(b) “Lowest price fro bumper hall pen L 900 (pounds)”. [ Facey to Harvey ]

Judgment: There was no concluded contract between Harvey and Facey. Because, a mere statement of price is not considered as an offer to sell.

10) Offer should not contain a term “the non-compliance” of which may be assumed to amount to acceptance.

INVITATION TO OFFER

When a person expresses something to another person, to invite him to make an offer it is known as invitation to offer. Invitation to offer is not defined in the Indian Contract Act, 1872. It can be defined as “when one party / persons are invited to one or more offer is called as invitation to offer”. It is not required for them to get into contract. When an invitation to an offer is accepted then it becomes offer. Object of invitation to offer is to receive offers from people thereafter contract will be created. Invitation to offer does not give rise to legal consequences.

The difference between offer and invitation to offer is very basic and lies mainly in the ‘intention’ of the parties. While an offer directly allows the other party to enter into a contract (that is, a legally binding agreement) as soon as it is accepted, an invitation to treat mainly invites the other party to make negotiations and himself make an offer to the seller. This might sound complicated, but it is a very fundamental difference that we see very often in our day to day lives. When we go to a bookshop, the mere display of the books in the shop is an invitation to treat by the bookseller to the general public. Anyone passing by the shop can choose to come to buy one of his books or may choose otherwise. Here, no one is legally bound to perform any action. Similarly, most forms of advertisements are not actually offers but invitations to offer.

Communication of Offer and Acceptance

Now we have seen previously that an offer cannot be revoked after the offeror has communicated it to the offeree. Then the offer becomes binding, it creates legal relations between the two parties. So when is the communication complete? Effective communication of the offer and a clear understanding of it is important to avoid misunderstanding between all the parties. If the parties are talking face-to-face this is not a problem. The communication happens in real time and the offer and acceptance will be communicated on the spot, creating no confusion. But often times in business the communication occur via letters and emails etc. So, in this case, the timeline of communication is important.

Communication of Offer

Section 4 of the Indian Contract Act 1872 says that the communication of the offer is complete when it comes to the knowledge of the person it has been made to. So when the offeree (in case of a specific offer) or any member of the public (in case of a general offer) becomes aware of the offer, the communication of the offer is said to be complete.

Example if A tells B he will fix his roof for five thousand rupees, the communication is complete as soon as the words are spoken. Let us take the same example. A writes to B offering to fix his roof for five thousand rupees. He posts the letter on 2nd July. The letter reaches B on 4th July. So the communication is said to complete on 4th July.

Communication of Acceptance

Acceptance can be done in two ways, namely-

Communication of Acceptance by an Act: This would include communication via words, whether oral or written. So this will include communication via telephone calls, letters, e-mails, telegraphs, etc.
Communication of Acceptance by Conduct: The offeree can also convey his acceptance of the offer through some action of his, or by his conduct. So say when you board a bus, you are accepting to pay the bus fare via your conduct.

Revocation of Offer

The Indian Contract Act lays out the rules of revocation of an offer in Section 5. It says the offer may be revoked anytime before the communication of the acceptance is complete against the proposer/offeror. Once the acceptance is communicated to the proposer, revocation of the offer is now not possible. Let us take the same example of before. A accepts the offer and posts the letter on 10th July. B gets the letter on 14th July. But for B (the proposer) the acceptance has been communicated on 10th July itself. So the revocation of offer can only happen before the 10th of July.

Revocation of Acceptance

Section 5 also states that acceptance can be revoked until the communication of the acceptance is completed against the acceptor. No revocation of acceptance can happen after such date. Again from the above example, the communication of the acceptance is complete against A (acceptor) on 14th July. So till that date, A can revoke his/her acceptance, but not after such date. So technically between 10th and 14th July, A can decide to revoke the acceptance.

Revocation of offer otherwise than by communication

Definition: According to section 2(a) of Indian contract act, 1872, defines offer as “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 otherto, such act (or) abstinence, he has said to make a proposal”.

Revocation (or) lapses of offer: Section 16, of the Indian contract act, 1872 deals with various modes of revocation of offer. According to it, an offer is revoked/lapses (or) comes to an end under following circumstances.

1) By communication of notice: An offeror may revoke his offer at any time before the acceptance by giving a simple notice of revocation, which can be either oral (or) written.

Example: HARRIS (VS) NIKERSON (1873).

Facts: An auctioneer in a newspaper that a sale of office furniture would be held. A broker came from a distant place to attend that auction, but all the furniture was withdrawn. The broker there upon sued auctioneer for his loss of time and expenses.

Judgment: A declaration of intention to do a thing did not create a binding contract with those who acted upon it. So, that the broker could not recover.

2) By lapse of reasonable time: An offer will revoke if it is not accepted with in the prescribed/reasonable time. If however, no time is prescribed it lapses by the expiry of a reasonable time.

Example: Ramsgate victoria Hotel Company (vs) Monteflore (1886)

Facts: On June 8th ‘M’ offered to take shares in ‘R’ Company. He received a letter of acceptance on November 23rd. he refused to take shares.

Judgment: ‘M’ was entitled to refuse his offer has lapsed as the reasonable period which it could be accepted and elapsed.

3) By non-fulfillment of some conditions: When offeror has prescribed some conditions to be fulfilled and offeree/ acceptor fails to fulfill the conditions required to acceptance. In such a case offer will be revoked.

4) By death (or) insanity of the offeror: The death of the offeror does not automatically revoke the offer. When the death (or) insanity of the offeror provided the offeree comes to know before its acceptance it will be revoked. Otherwise if he accepts an offer in ignorance of the death (or) insanity of the offeror, the acceptance is valid.

5) By a counter offer: “counter offer” means when the offeree/acceptor offers to qualified acceptance of the offer subject to modifications and variations in the terms of original offer. Therefore counter offer amounts to rejection of the original offer.

Example: Hyde (vs) Wrench (1840)

Facts: ‘W’ offered to sell a farm to ‘H’ for L 1000 (pounds). ‘H’ offered L 950 (pounds) ‘W’ refused the offer. Subsequently, ‘H’ offered to purchase the farm for L 1000 (pounds).

Judgment: There was no contract as ‘H’ by offering L 950 (ponds) had rejected the original offer. Because the counter offer to a proposal amounts to its rejection.

6) By change in law: 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.

7) An offer is not accepted according to the prescribed (or) usual mode: If the offer is not accepted according to the prescribed (or) usual mode, provides offeror gives notice to the offeree within a reasonable time that the offer is not accepted according to the prescribed/usual mode. If the offeror keeps quite, he is deemed to have accepted the offer.

8) By death (or) insanity of the offeree/acceptor.

9) By destruction of the subject matter.

A contract without consideration is void- Discuss its exceptions

Consideration is a technical term used in the sense of quid-pro-quo (i.e..,something in return). When a party to an agreement promises to do something, he must get something in return.

This “something” is defined as consideration.

Definition:- According to section 2(d) of the Indian contract Act, 1872, defines consideration as “when at the desire of the promisor, the promise (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”.

Example: Abdul Aziz (vs) Masum Ali (1914)

Facts: The secretary of a mosque committee filed a suit to enforce a promise which the promisor had made to subscribe Rs.500/- for rebuilding a mosque.

Judgment:‘The promise was not enforceable because there was no consideration in the sense of benefit’, as ‘the person who promised gained nothing in return for the promise made’, and the secretary of the committee to whom the promise was made, suffered no detriment (liability) as nothing had been done to carry out the repairs. Hence the suit was dismissed.

Validity of an agreement without consideration:

The general rule is that an agreement made without consideration is void. In the following cases, the agreement though made without consideration, will be valid and enforceable according to section 25 and 185 are as follows:-

1. Nature love and affection: An agreement made without consideration is valid if it is made out of love, nature and affection such agreements are enforceable if

The agreement is made in writing and registered.
The agreement must be made between the parties standing in near relations to each other and
There must be nature, love and affection between the parties.

Example: Venkatswamy (vs) Rangaswamy (1903):

Facts: By a registered agreement, ‘V’, on account of nature, love and affection for his brother, ‘R’, promises to discharge debt to ‘B’. If ‘V’ does not discharge the debt.

Judgment: ‘R’ may discharge it and then sue ‘V’ to recover the amount. Therefore it is a valid agreement.

2. Compensation for past voluntary services: A promise made without consideration is valid if, it is a person who has already done voluntarily done something for the promisor, is enforceable, even though without consideration. In simple words, a promise to pay for a past voluntary service is binding.

3. Promise to pay Time-Bared debt: An agreement to pay a time-bared debt is enforceable if the following conditions are satisfied.

The debt is a time bared debt
The debtor promises to pay the time barred debt.
The promise is made in writing.
The promise is signed by the debtor.

4. Completed gifts: The rule “No consideration – No contract” does not apply to completed gifts. According to section 1 to 25 states “nothing in section 25 shall affect the validity, as between the donor and donee, of any gift actually made”

5. Agency: According to section 185, no consideration is necessary to create an agency.

6. Charitable subscription: Where the promisee on the strength of promise makes commitments (i.e.., changes his position to his liability/detriment).

Example: Kedernath (vs) Ghouri Mohammed (1886).

Facts: ‘G’ had agreed to subscribe Rs.100/- towards the construction of a town hall at Howrah. The secretary, ‘K’, on the faith of the promise, called fro plans and entrusted the work to contractors and undertook the liability to pay them.

Judgment: The amount could be recovered, as the promise resulted in a sufficient detriment to the secretary. However, be enforceable only to the extent of the liability incurred by the secretary. In this case, the promise, even though it was gratuitous, became, enforceable because on the faith of promise the secretary had incurred a detriment.

AGREEMENT AND CONTRACT

What agreements are contracts?

This Article define us what agreements are contracts and the provision that deal with this in Indian Contract Act, 1872 i.e. Section 10. This article covers all the essential conditions which are necessary for making an agreement into contract with relevant case laws, rules and illustrations. Essential conditions like there is some consideration for it, the parties are competent to contract, their consent is free, lawful object must be there. This Article briefly covers section 11 and 12 (competent parties), section 13 (existence of consent) and 14 (free consent), section for coercion, undue influence, fraud, misrepresentation and mistake.

When agreement becomes Contract

An agreement becomes a contract when it is enforceable by law (Section 2(h) of Indian Contract Act). In other words, an agreement that the law will enforce is a contract. The conditions when an agreement will enforce are given in Section 10 of Indian Contract Act, 1872. In this section, an agreement is a contract when it is made for some consideration, between competent parties, with their free consent and for a lawful object. “All agreement are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and not hereby expressly declared to be void”.

Every contract is an agreement, but every agreement is not a contract.

So, the following conditions must be essential for a valid contract:

1) There is some consideration for it

2) The parties are competent to contract.

3) Existence of consent of parties.

4) Their consent is free.

5) Their object is lawful.

6) The agreement not being expressly declared to be void.

Competent parties to enter into contract: According to section 11 and 12 of the Act, the following persons are not competent to contract:

1) Minors (in Mohri bibi v. Dharmodas Ghose it was held that an agreement with a minor is void ab initio);

2) Persons of sound mind;

3) Persons disqualified by law.

Illustrations: A patient in a lunatic asylum, who is, at intervals, of sound mind, any contract during those intervals. A sane man, who is so drunk that he cannot understand the terms of a contract, cannot contract whilst drunkenness lasts.

Free consent: The parties must have agreed to something in the same sense and the consent of the party must not have been obtained by:

Coercion-(S.15) : An act is forbidden by the penal code.

(In Chikam Amiraju v. Chickam Seshamma it was held that the threat of suicide amounts to coercion within section 15 of Indian Contract Act). Illustrations: A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code. A, afterwards sues B for breach of contract at Calcutta. A has employed coercion, although his act is not an offence by the law of England.

Undue influence-(S.16): Influence by which a person is induced to act otherwise than by their own free will or without adequate attention to the consequences.

Illustrations: Aman, a man enfeebled by disease or age, is induced, by Bharat influence over him as his medical attendant, to agree to pay Bharat an unreasonable sum for his professional services. Bharat employs undue influence.

Fraud-(S.17): Fraud is defined under section 17 of the Indian Contract Act, 1872. Illustrations: Aryan sells a horse to Babu which Aryan knows to be unsound. Aryan says nothing to Babu about the horse’s unsoundness. This is a fraud.

Misrepresentation-(S.18): Fraudulent, negligent, or innocent misstatement, or an incomplete statement, of a material fact. Illustrations: A, intending to deceive B, falsely represents that five hundred mounds of indigo are made annually at A’s factory, and thereby induces B to buy the factory. This contract is voidable at the option of B.

Mistake- Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement the agreement is void.

Lawful object: For the formation of a Contract, it is very important that the consideration and object of the contract must be lawful.

Consideration or object is said to be unlawful if:

1) It is forbidden by law

2) It would defeat the provision of any law;

3) It is fraudulent;

4) It involves or implies an injury to the person or property of another;

5) The court regards it as immoral or against public policy.

VOID AND VOIDABLE AGREEMENTS

VOID AGREEMENT- Void agreements are those agreements which are not enforced by law courts. Section 2(g) of the Indian Contract Act defines a void agreement as, “an agreement not enforceable by law”. Thus the parties to the contract do not get any legal redress in the case of void agreements. Void agreements arise due to the non-fulfilment of one or more conditions laid down by Section 10 of the Indian contract Act. This Section states as follows: All agreements are contracts if they are made with free consent of parties competent to contract, for a lawful, consideration and with a lawful object, and are not hereby expressly declared to be void. An agreement to do an act impossible in itself is void (S.56)

Impossibility of performance of an act does not give or create any obligation upon the parties to a contract. Section 56 of the Act, declared such contract as void. This section states as follow: An agreement to do an act impossible in itself is void. A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, becomes void when the act becomes impossible or unlawful. Where one person has promised to do something which he knew, or with reasonable diligence, might have known, and which the promisor did not know to be impossible or unlawful, such promisor must make compensation to such promise for any loss which such promise sustains through the non- performance of the promise.

Illustrations

(a) A agrees with B to discover treasure by magic. The agreement is void.

(b) A and b contract to marry each other. Before the time fixed for the marriage. A goes mad. The contract becomes void.

(c) A contracts to marry B, being already married to C, and being forbidden by law to which he is subject to practice polygamy. A must make compensation to B for the loss.

VOIDABLE AGREEMENTS-

A voidable contract, unlike a void contract, is a valid contract which may be either affirmed or rejected at the option of one of the parties. At most, one party to the contract is bound. The unbound party may repudiate (reject) the contract, at which time the contract becomes void. Typical grounds for a contract being voidable include coercion, undue influence, misrepresentation or fraud. A contract made by a minor is often voidable, but a minor can only avoid a contract during his or her minority status and for a reasonable time after he reaches the age of majority. After a reasonable period of time, the contract is deemed to be ratified and cannot be avoided. Other examples would be real estate contracts, lawyer contracts, etc. When a contract is entered into without the free consent of the party, it is considered a voidable contract. The definition of the act states that voidable contract is enforceable by law at the option of one or more parties but not at option of the other parties. A voidable contract may be considered valid if it is not cancelled by the aggrieved party within a reasonable time.

DIFFERENCE BETWEEN VOID AND VOIDABLE AGREEMENT

VOID AGREEMENT	VOIDABLE AGREEMENT
In a void contract no obligation or right arises or accrues to parties to the contract from a void contract. Such contracts are not covered by law.	A voidable contract continues at the option of one party; it is the desire of one party either to rescind it or continue; it is enforceable at the option of one party and is covered by law.
A void contract can give rise to no legal liability since transaction is nullity.	A voidable contract remains valid until rescinded.
A void contract cannot confer any right.	A voidable contract confers enforceable right till is not essential.
The contract becomes void when it ceases to be enforceable.	A voidable contract can be made valid by the party who has a right to rescind it by giving up his right of rescinding it.
A void contract cannot be made valid by parties to the contract by their consent.	A voidable contract can be made valid by the party who has a right to rescind it by giving up his right of rescinding it.

NATURE OF AGREEMENTS

CONDITIONAL CONTRACTS- Conditional contract is an agreement that is enforceable only if another agreement is performed or if another specific condition is satisfied. A conditional contract is also termed as hypothetical contract. This is a contract which states that certain conditions should be satisfied before the parties become bound to carry out the terms of the contract. The contract is called “conditional” until the conditions listed are satisfied. Both the buyer and the seller can incorporate conditions in the offer. A conditional contract is legally binding, but the obligations under it are suspended until it becomes unconditional.

A conditional contract, also called a hypothetical contract, is a contract agreement that only requires performance once the delineated conditions are met. This legal agreement requires prior performance of another agreement or clause in order to be enforceable. If the other agreement or condition is performed, then the conditional contract is enforceable and the parties are bound to carry out the terms of the contract. Both the buyer and the seller can request conditions to be included in the offer to a conditional contract. A conditional contract is legally binding if formed under contract law requirements.

2 CONTINGENT CONTRACT- the ‘contingent contract’ means enforceability of that contract is directly depends upon happening or not happening of an event. Section 31 of the Indian Contract Act, 1872 defines the term ‘Contingent Contract’ as follows:

‘A contingent contract is a contract to do or not to do something, if some event collateral to such contract does or does not happen’. In simple words, contingent contracts, are the ones where the promisor perform his obligation only when certain conditions are met. The contracts of insurance, indemnity, and guarantee are some examples of contingent contracts.

Illustration:- A contracts to pay to B Rs. 20,000 if B’s house is burnt. This is a contingent.

Case: Chandulal Harjivandas v. CIT– In this case, it was held that all contracts of insurance and indemnity are contingent.

Essential elements of the contingent contract

After examining the definition of the contingent contract given under section 31 of the Act, the essentials of the term contingent contract are as follows:

1. There must be a valid contract to do or abstain from doing something Section 32 and 33 of the Act talks about enforcement of the contingent contract on the happening or not happening of the events respectively. The contract will be valid only if it is about performing or not performing an obligation.

Illustration 1: X makes a contract with Y to buy Y’s dog if X survives Z. This contract cannot be enforced by law unless and until Z dies in X’s lifetime.

Illustration 2: X agrees to pay Y a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.

2. Performance of the contract must be conditional: The condition for which the contract has been entered into must be a future event, and it should be uncertain. If the performance of the contract is dependent on an event, which is although a future event, but certain and sure to happen, then it’ll not be considered as a contingent contract.

Doctrine of Privity Of Contract

A stranger to a consideration can sue” – Are there any exceptions to this rule?

Introduction: There is a general rule of law is that only the parties to a contract can sue. In other words, if a person not a party to a contract, he cannot sue. This rule is known as the “Doctrine of privity of contract”. Privity of contract means relationship subsisting between the parties who have entered into contractual obligations. As per the doctrine of Privity of consideration if, as per section 2(d) or any other person, is not being a party to contract has fulfilled or given the consideration on the place of promisee (who is party to the contract) there in this situation when any other person who is not he party to contract has fulfilled or given the consideration the promise will become stranger to consideration.

Under English law initially it was held in the case of Dutton v Poole (1678) that a stranger to consideration can sue however later on in the case of Tweddle v Atkinson (1861) the former precedent was set aside and held that stranger to consideration cannot sue under English law as there is no involvement of any other person either it be in contract or be in consideration. The consideration given or fulfilled by any other person in English law makes that agreement void in itself.

However, in Indian law this concept has been taken inversely to the concept of English law. It can manifestly be seen in the wordings of the statute itself that a consideration can be given or fulfilled by any other person. Therefore, in India stranger to consideration can sue. This apparently shows that Indian law is liberal to deal with the concept of Stranger to consideration whereas the English is strict at this place.

There are two consequences of doctrine of privity of contract they are follows:

A person who is not a party to a contract cannot sue even if the contract is for his benefit and he provided consideration. (Or) A stranger to a contract cannot sue.

A contract cannot provide rights (or) impose obligations arising under it on any person other than the parties to it. (Or) A stranger to a contract can sue.

Example: Dunlop Pneumatic Tyre Co.Ltd (vs) Selfridge & Co.Ltd (1915).

Facts: ‘S’ bought tyres from the Dunlop Rubber company and sold them to ‘D’, a sub-dealer, who agreed with ‘S’ not to sell below Dunlop’s list price and to pay the Dunlop company L 5 (pounds) as damages on every tyre ‘D’ undersold. ‘D’ sold two tyres at less than the list price and there upon, the Dunlop Company sued him for the breach.

Judgment: The Dunlop Company could not maintain the suit as it was a stranger to the contract.

Exceptions: The following are the exceptions to the rule that a stranger to a contract cannot sue:-

1. A trust: In trust deed beneficiaries is allowed to sue the trustee for enforcement of trustee’s duties even though they are not contracting party. However, the name of the beneficiary must be clearly mentioned in the contract.

Example: Gandy (vs) Gandy (1884):

Facts: A husband who was separated from his wife executed a separation deed by which he promised to pay to the trustees all expenses for the maintenance of his wife.

Judgment: This sort of agreement creates a trust in favour of the wife and can be enforced.

2. Marriage settlements, partition (or) other family arrangements: When an agreement is made in connection of marriage settlements, partitions (or) other family arrangements and a provision is made for the benefit of a person, he may sue although he is not a party to the agreement.

Example: Daropti (vs) Jaspat Rai (1905):

Facts: ‘J’s wife deserted him because of his ill treatment. ‘J’ entered into an agreement with his father-in-law to treat her properly (or) else pay her monthly maintenance. Subsequently, she was again ill-treated and also driven out.

Judgment: she was entitled to enforce the promise made by ‘J’ to her father.

3. Acknowledgement (or) Estoppel: The person, who becomes an agent of a third party by acknowledgement (or) Estoppel, can be sued by such third party.

4. Assignment of contract: Assignment means voluntary transfer of the rights by a person to another. In such a case an assignee becomes entitled to sue and enforce the rights which are assigned to him.

5. Contracts entered into through an agent: The principal enforce the contract entered into by his agent provided the agent act within the scope of his authority and in the name of the principal.

6. Covenants running with the land: In case of transfer of immovable property, the purchaser of land (or) the owner of the land is bound by certain conditions (or) covenants created by an agreement affecting the land.

DOCTRINE OF PUBLIC POLICY

“Agreements opposed to public policy”-Explain.

An agreement is said to be opposed to public policy when it is harmful to the public welfare. An agreement whose object (or) consideration is opposed to public policy is void. Some of those agreements which are (or) which have been held to be, opposed to public policy and are unlawful as follows:-

1. Agreements of trading with enemy: An agreement made with an alien enemy at the time of war is illegal on the ground of public policy. This agreement is based upon the two reasons:

a) Contract made during the continuance of the war, an alien enemy can neither contract with an Indian subject (nor) can he sue in an Indian court. He can do so only after he receives a license from the central government.

b) Contract made before the war may either be suspended (or) dissolved.

2. Agreement to commit a crime: An agreement is to commit a crime is opposed to public policy and it is void. In such a case the court will not enforce the agreements.

Example: W.H.Smith & sons (vs) Clinton (1908):

Facts: ‘A’ promises to indemnity (pay) a firm of printers and publishers of a paper against the consequences of any libel (publishing a false statement) which it might publish in its paper.

Judgment: ‘A’ promise could not be enforce in a law court. Where the firm was compelled to pay damages for a published libel.

3. Agreements in restraint of legal proceedings: An agreement in restraint of legal proceeding is the one by which any party thereto is restricted absolutely from enforcing his right under a contract through a court. Contracts of this nature are void because its object is to defeat the provision of the Indian Limitation act.

4. Agreements which interfere with administration of justice: Where the consideration (or) object of an agreement of which is to interfere with the administration of justice is unlawful, being opposed to public policy. It may take any of the following forms:-

a) Interference with the court of justice,

b) Stifling prosecution,

c) Maintenance,

d) Champerty.

5. Trafficking in public offices and tittles: Trafficking in public offices means trading in public offices to obtain some gain which otherwise cannot be obtained. Trafficking in tittle means some such award from government in return of consideration. A contact of this nature is void and is against to public policy and also it is illegal.

Example: Parkinson (vs) College of Ambulance, Ltd (1925):

Facts: ‘A’ promised to obtain an employment to ‘B’ in a public office and ‘B’ promised to pay ‘A’ Rs.1000/-.

Judgment: The agreement was against to public policy and also illegal.

6. Agreement tending to creates interest opposed to duty: If a person enters into an agreement whereby he is bound to do something which is against to public (or) professional duty, in such a case the agreement is void on the ground of the public policy.

7. Agreements in restraint of parental rights: A father (or) mother is the legal guardian of his/her minor child. This right and duty of guardianship cannot be bartered away. Therefore, a father/mother cannot enter into an agreement inconsistent with his duties which are opposed to public policy.

8. Agreement in restraint of marriage: Every agreement in restraint of marriage of any person, other than a minor, is void and opposed to public policy. This is because the law regards marriage and marriage status as the right of every individual.

9. Agreement restricting personal liberty: Agreement which unduly restricts the personal freedom of the parties is void and against to public policy.

10. Agreement in restraint of trade: Every agreement by which any one is restrained from exercising a lawful profession (or) trade (or) business of nay kind, is to that extent void and opposed to public policy. But this rule is subject to the following exceptions:-

Exceptions:

a) Sale of goodwill.

b) Partner’s agreement.

c) Trade combinations.

d) Service agreement.

In the above exceptions the court will enforce the agreements. Because only if there is any restrictions imposed on such agreements are reasonable.

Example: Shaikh Kalu (vs) Ram Saran Bhagat (1909):

Facts: Out of 30 makers of combs in the city of Patna, 29 agreed to supply with ‘R’ to supply him and also agreed not to supply any one else all their output. Under the agreement ‘R’ was free to reject the goods if he found no market for them.

Judgment: The agreement amounted to restraint of trade and thus void.

11. Marriage brokerage: As a public policy, marriage should take place with free choice of the parties and it cannot be interfered with by third party acting as broker. Agreement for brokerage for arranging marriage is void. Similarly agreement of dowry cannot be enforced.

12. Agreement to defraud creditors (or) revenue authorities: An agreement which object is to defraud the creditors (or) revenue authorities is not enforceable, being opposed to public policy.

13. Agreement interfering with marital duties: Any agreement which interferes with the performance of marital duties is void, being opposed to public policy.

Quasi-Contractual Obligations under Indian Contract Act

Introduction - Chapter -V, Section 68 to Section 72 of the Indian Contract Act, 1872 speaks about "Quasi-Contract or Certain relations resembling those created by contracts. These relations resembling contract are known as contract implied in law or a quasi-contract. It is not real contract or as it is called, a consensual contract based on the agreement of the parties. These obligations come into existence by a fiction of law.

Meaning and Definition of Quasi-Contract - Quasi Contract is based on the principle of equity. That "A person shall not be allowed to enrich himself unjustly at the expense of another. It means one should not accept or receive any benefit unjustly.

In the absence of Contract but on the principle of equity, imposes obligation on the party/person such obligation is called Quasi Contractual Obligation. It is same to a real contract between the Parties.

The term Quasi Contract is derived from the Roman Law "Obligatio quasi ex contractu". Quasi Contract is not real Contract entered into by parties intentionally. It resembles a contract in which law imposes on obligation on a person to perform an obligation on the ground of equity.

According to Salmond, "There are certain obligations which are not in truth contractual in the sense of resting on agreement, but which the law treats as if they were."

Example - XYZ leaves his wristwatch at ABC's house by mistake. here ABC has Quasi-contractual obligation to return it to XYZ.

Note - Generally, In a contract, obligations are created on the parties out of an agreement but In these type of contracts (quasi-contracts) obligations are created on the parties without any agreement.

Features of a Quasi-Contract

Their origin does not lie in the offer and its acceptance, that is, in an agreement between the parties.
They are rather based on justice, equity, and a good conscience and on the principles of natural justice.

Kinds of Quasi Contracts -

Section 68 to Section 72 of the Indian Contract Act, 1872 deals with Five Kinds of Quasi-Contract which are as follows -

1.Section 68 (Claim for necessaries supplied to person incapable of contracting, or on his account): If the “necessaries” for a person, who is incapable of contracting (for example, a minor or a mentally disabled person) or of the dependants of such a person are taken care of by someone, he has the right to be reimbursed from the property of such incapable person. Although the word “necessaries” has not specifically been defined in the Act, it is impliedly clear that it means the necessaries to sustain life, basic things like food, clothing, education, etc. These are things without which a person cannot reasonably exist. In simple terms, if a person A supplies another person B (who is incapable of entering into a contract) or his family or anybody else who is dependent on him, with necessaries for life, he is entitled to take his due return from the property of person B. He is entitled only to such a reasonable amount as the value of the goods or services he may have supplied hold.

2.Section 69 (Reimbursement of person paying money due by another, in payment of which he is interested): If a person A pays something in someone’s (a person B’s) place, that which person B is himself ‘bound by law’ to pay, A will be reimbursed by B. Please note that the person A should be ‘interested’ in this payment. It is a case of implied indemnity.

For instance, Joe is a Zamindar. Annie holds one of his lands on lease in Punjab. The revenue of Joe’s land is payable to the government in arrears. So, the land ends up being advertised for sale by the government. According to the Revenue Law, if the land is sold, it will end Annie’s lease. To prevent this sale, Annie pays Joe’s dues to the government. Joe is bound to pay back to Annie.

The aforementioned illustration satisfies the following conditions:-

The party paying the other party’s dues is interested in the payment.
The party whose payment is due was in fact bound by law to pay.

3.Section 70 (Obligation of person enjoying the benefit of the non-gratuitous act)

When a person lawfully does something for another person (for example, delivers a good or a service) without intending to do so ‘gratuitously’, and the other person enjoys the benefit of the delivery of that good or service, the latter is bound to pay back to the former.

A gratuitous act is one that is done for a person by another without the expectation of a return. For example, giving someone a gift is a gratuitous act. Here comes your Amazon package delivered to the wrong address. A pack of chocolate chip cookies that you ate as soon as they arrived. You are liable to compensate the actual owner of the package. The illustration of a shoe-shiner unsolicitedly polishing one’s shoes or that of the coolie picking up one’s goods will lie under Section 70. Such acts and services are not done gratuitously and therefore a liability to pay back arises on the part of the person on the receiving end.

4.Section 71 (Responsibility of finder of goods): Simply, a person who finds goods that belong to another person shall be treated as a bailee. A bailee is essentially a safe keeper of the goods, who is supposed to return the goods to the actual owner or dispose them in the manner in which the actual owner may want them to. The bailee has certain duties and rights as the ‘possessor’ or ‘custodian’ of the goods for the time being. For example, Sarah finds a diamond lying on the floor in a shop. She picks it up and keeps it in her safe possession. Sarah makes all reasonable efforts to find the true owner of the diamond. The diamond actually belonged to Nadia. Sarah has the right to hold the possession of the diamond against all the world except Nadia, and is supposed to make reasonable efforts to find her, and return it to her. In this case, Nadia will have to pay the compensation for all the loss suffered by Sarah in finding her.

Duties of the finder of goods

· The finder has a duty to take reasonable care.

· He/she has a duty not to use the goods for his personal purposes.

· He/she has a duty not to mix the found goods with his own goods.

· He/she has a duty to make reasonable efforts to find the actual owner of the goods.

Rights of the finder of goods

· Right to Lien– The right to retain the goods found until he receives compensation for all the expenses suffered in finding the owner.

· Right to Sue– If the owner had announced a reward for whoever finds the good, the finder has the right to sue the owner for such reward or retain the goods until he is compensated.

· Right to Sell– The finder of goods has the right to sell the goods in certain specific circumstances.

5.Section 72 (Liability of person to whom money is paid or thing delivered by mistake or under coercion):

As the heading suggests, if something is delivered to a person by ‘mistake’ or under ‘coercion’, he is liable to pay it back. For instance, Aristotle and Dante share a flat and contribute in half for the rent to be paid. Aristotle, without knowing that Dante has already paid the due rent to the landlord in whole, pays again to the landlord. The landlord, in this case, is liable to give back the money delivered to him by mistake. The term mistake here can mean both mistake of fact or mistake of law.

The section also uses the term ‘coercion’. Here is an example of something delivered under coercion- A railway company refuses to deliver goods to a certain consignee except upon the payment of a certain illegal sum of money. The consignee pays the sum to obtain his goods. The company is liable to return the sum of money illegally charged.

TERMINATION BY BREACH OF CONTRACT

A repudiatory breach of contract will allow the innocent party to treat the contract as being at an end. However not all breaches will be repudiatory breaches. The nature of the term and the breach itself are highly relevant.

Condition - If a term is vital to performance of the contract it will be a condition and if the condition is breached the innocent party will be entitled to terminate the contract and claim damages - no matter how minor the consequences of the breach.

Warranty – Generally means a statement or assurances about a factual matter. A breach of a warranty will not allow for termination, no matter how serious the breach may be. If a breach of warranty occurs the innocent party will only have a remedy in damages.

Intermediate term - a breach of a term that is neither a condition nor a warranty will only justify termination of the contract if the breach is sufficiently serious. The breach must go to the root of the contract, frustrate its commercial purpose or deprive the innocent party of substantially the whole of its benefit. If it doesn't, the remedy will be damages.

Refusal to perform - if a party declares an intention not to perform the contract or some essential aspects of it, the innocent party will be entitled to treat the contract as though it is at an end and will not be required to perform further obligations. Where this occurs before performance is due this will be an anticipatory repudiatory breach. A declaration of non-performance can be express or it can be inferred from conduct. Such conduct would require a reasonable person to conclude that the other party to the contract has no intention of performing its obligations. For example, a chain of non-payments, particularly when coupled with a failure to engage in communications, could be repudiatory in nature. Unless repudiation is accepted, the contract will continue and it won't terminate automatically. The innocent party can elect to accept the breach and treat the contract as at an end or it can affirm the contract and require the party in breach to continue to perform. In the case of an anticipatory repudiatory breach, the innocent party can also choose to wait and see if the other party will in fact perform the contract.

In all cases, the innocent party will retain the right to claim damages for the breach in question. Note, however, that an innocent party has a certain amount of time to decide whether to continue with the contract or to end it. If the decision takes too long, the law will treat the contract as having been affirmed. The contract will also be treated as having been affirmed if the innocent party acts as though the contract is still in place or does something which can be viewed by the other party as waiving the right to terminate for repudiatory breach. Affirming the contract means that the right to treat the contract as having come to an end will be lost and both parties will be required to continue to perform their obligations. The innocent party must communicate its acceptance of the repudiation - and therefore the termination of the contract - to the other party. Once the repudiation has been accepted it cannot be withdrawn.

Contractual terms providing for termination

A contract can also expressly provide for termination on an event which would not otherwise be regarded as a repudiatory breach allowing for termination at common law. Some contracts allow for termination in the event of a material or substantial breach (such as breach of confidentiality or a failure to pay), or if there are repeated breaches. Any contractual right to terminate will operate in addition to any common law rights to terminate - unless those termination rights are expressly excluded. Careful drafting will be required to ensure any termination provisions work and to make clear whether common law rights to terminate remain or are excluded. Care must also be taken to ensure any notice of termination, which terminates a contract under a specific contract provision, does not then exclude a right for common law damages. The courts have held that any exclusion of common law remedies must be expressed clearly: there must be no ambiguity. If a notice expressly confirms that termination is under a specified clause (for example a clause providing for termination on an insolvency event) and it makes no mention of the fact the receiving party is in breach of the contract, the innocent party will not be able to recover damages for a repudiatory breach, even if such a breach had occurred.

Force Majeure

A force majeure clause in a contract will typically excuse one or both parties to a contract from performing their obligations following the occurrence of specified events, which are outside of their control.

Examples could include:

1) acts of God, flood, drought, earthquake or other natural disaster;

2) Terrorist attack, civil war, war, imposition of sanctions;

3) Collapse of buildings, fire, explosion or accident; and

4) Any law or action taken by a government or public body.

DOCTRINE OF FRUSTRATION

The doctrine of frustration is present in India u/s. 56 of the Indian Contract Act 1852. It says that any act which was to be performed after the contract is made becomes unlawful or impossible to perform, and which the promisor could not prevent, then such an act which becomes impossible or unlawful will become void. It lays down a rule of positive law and does not leave the matter to be determined according to the intension of the parties. This section clearly does not apply to a case, in which although consideration of contract is lost, performance of promise on other side is still possible. It is well settled that frustration automatically brings the contract to an end at the time of the frustrating event. This is in contrast to discharge by breach of contract where the innocent party can choose whether to treat the contract as repudiated. Moreover, a contract, which is discharged by frustration, is clearly different from one, which is void for mistake. A frustrated contract is valid until the time of the supervening event but is automatically ended thereafter, whereas a contract void on the grounds of mistake is a complete nullity form the beginning.

Section 56 is based on the maxim “les non cogit ad impossibilia” which means that the law will not compel a man to do what he cannot possibly perform.

The basis of the doctrine of frustration was explained by Supreme Court in the case of Satyabrata Ghose v. Mugneeram in which Justice Mukherjee held that the basic idea upon which doctrine of frustration is based is that of the impossibility of performance of the contract and the expression frustration and impossibility can also be used as synonyms.

The doctrine of frustration is however applicable only in 2 cases

If the object of the contract has become impossible to perform or an event has occurred making the performance of the contract to be impossible beyond the Control of promisor.

Illustration

A, a resident of India entered into a contract with B, a resident of China for the export of 550 heavy Trucks. Initially, 100 Trucks were delivered, later war was announced between India and China and the government of India suspended all the business transactions with China. Now after this contract has become void.

A and B contract to marry each other. Before the time fixed for marriage A dies and therefore the said contract between A and B will become void as one party to a contract has died.

Generally, frustration of contract can be in the following cases:-

1) Death or incapacity of a party:- Where a party to the contract has died after entering into contract or the party is incapable of performing the contract, in such a situation the contract will be void ( Robinson v Davison).

2) Frustration by virtue of legislation:- Where, a law promulgated after the contract is made, makes the performance of the agreement impossible and thereby the agreement becomes void ( Rozan Mian v Tahera Begum).

3) Frustration due to change of circumstances:- This particular situation deals with those cases where there was no physical impossibility of performance of the contract, but because of the change in circumstances, the main purpose for which the contract was entered has been defeated.

DAMAGES/ REMEDIES

“Breach of contract” is the term used to refer to a situation where one party breaks the promise they made in the contract. The type of remedy that a party may be entitled to is largely determined by the severity of the breach of the contract, as well as the damage done to the other party. If the damage done to the other party is minimal, remedies for breach of contract may include contract rescission or modification. However, if the damage done is extensive and severe, the breaching party may be ordered to pay money to help restore the injured party to where they were before the breach occurred. These monetary payments are often referred to in the legal system as “damages.”

KINDS OF DAMAGES-

1. Compensatory Damages- Compensatory damages are the most common remedy in cases of breach of contract. Usually this type of remedy is intended to compensate the non-breaching party for losses suffered as the result of a contract breach. They are not intended to punish the breaching party, but to make the injured party “whole again” under the law.

2. Restitution- Restitution is often ordered to make the breaching party pay the injured party back. The intent of restitution is to restore the injured party to the position they were in before the contract was created. Because these damages are intended to restore the injured party to their original position, this does not include lost profits or earnings caused by the breach of contract.

3. Liquidated Damages- Some contracts include provisions that dictate a pre-set amount of damages that they will pay in the event of a breach. These are called “liquidated damages.” Liquidated damages provisions are often included when damages are difficult to foresee, and an estimate for potential damages is necessary.

4. Nominal Damages- Nominal damages are usually awarded when there was no real harm done as a result of the breach of contract. They are called “nominal” because the amount of damages is usually very small — sometimes as little as rupee 1. You might consider this more of a symbolic victory, or a matter of principal.

5. Quantum Meruit- The Latin phrase “quantum meruit” refers to monetary damages that are awarded to a party for any performance prior to the other party’s breach of contract. For example, if painters begin painting a house and complete the first three rooms, but the homeowner decides that she does not want the painters to finish painting the rest of the house, the court could order the homeowner to pay for the work that was completed.

6. Remedies in Equity- “Remedies in equity” refer to when the court orders a party to do something, rather than pay monetary damages. This could take much different form, from cancelling the contract and releasing the parties from their responsibilities under the agreement, to specific performance

7. Punitive Damages - This is pretty much what it sounds like — damages that are intended to punish the offending party. Punitive damages are not available in every situation, though. This type of damages is reserved for cases where the other party has behaved in a morally reprehensible way, where punishment is warranted. A simple misunderstanding is unlikely to result in punitive damages.

INDIAN CONTRACT ACT 1872 NOTES (PART 2)

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