BUSINESS REGULATORY FRAMEWORK

Introduction
A vital element impacting business transactions and decisions is
business regulatory framework .Different laws and regulations govern
specific aspects of many vital decision taken by business enterprises.
The laws are enforced by state to regulate behaviour of individuals
and groups (eg:business firms) to secure justice, peaceful living and
social order

Salmond says ‘‘Law is the body of principle

recognised and applied by the state in the administration of justice”
Simply stated ,law operates to regulate the
actions of persons with respect to one another and entire group or
society and the state.There are various branches of law concerning
specific aspects eg;civil,criminal’administrative,
constitutional,business,labour laws etc.
The legal framework within which different
business firms have to operate are largely governed by General Laws
applicable to all forms of organisations –irrespective of their size and
ownership.These laws fall in to category of Mercantile Laws.The term
business law ,commercial law and Mercantile law are synonymous.
Business law deals with rights and obligations
arising out of mercantile transactions among mercantile
persons.Business law denotes aggregate body of legal rules connected
with industry,trade and commerce
Business or mercantile law incude law
relating to contracts,sale of goods ,Negotiable
instruments ,partnership companies, insurance, carriage of
goods ,insolvency ,consumer protection etc.
MODULE- 1
CHAPTER 1
LAW OF CONTRACT
Meaning and definition
The law relating to contracts in India are contained in the
Indian Contract Act, which came in to force on the 1st day of
september1872. It is applicable to the whole state of India including
the state of Jammu & Kashmir . It is not only the business community
which is concerned with the law of contract, but if affects every
person. Without such a law it would have been difficult or not
possible to carry on any trade or commerce. The law of contract is
mainly concerned with the enforcement of right and obligation under
a contract.
The Indian Contract Act may be divided in to two parts;
1st part
Sec. 1 to 75 deals with General Principles of Contract
2nd part
Sec.124 to 238 deals with special type of contract such as
(i) Contract of Indemnity and Guarantee
(ii) Contract of Bailment and pledge
(iii) Contract of Agency

The word contract is derived from the Latin word

‘contractum’ which means ‘ drawn together’ .It denotes a drawing
 together the minds of two or more persons to form a common
intention giving rise to an agreement.
Sir. John Salmond defines a contract as, “an
agreement creating and defining obligation between parties .”
Sec.2(h) of the Indian contract Act defines a contract as ,
“ an agreement which is enforceable by law.” Therefore,a contract
essentially consists of two elements
1.Agreement
2.Enforceability at law
So all agreements which can be enforced at law are contracts.
Contract = Agreement + Enforceability at law
Agreement
An agreement gives birth to a contract. An agreement is
defined as, “every promise and every set of promises forming
consideration for each other”(sec,2(e)).A proposal when accepted
becomes a promise. Thus ,an agreement is an accepted proposal .An
agreement comes in to existence only when one party makes a
proposal or offer to the other party and the other party accept the
proposal. In short, agreement is sum total of offer and
acceptance .Thus
Agreement = offer +Acceptance
Enforceability
An agreement to become a contract it must give rise to legal
obligation or duty. The agreement should create legal obligations,
mere promise are not to be enforced. Social agreements are not to be
enforced as they do not create any legal obligations.

Essential elements of a valid contract

 According to sec.10 of the Indian Contract Act, “all agreements
are contracts if they are made by free consent of parties, competent to
contract for a lawful consideration and with a lawful objects and are
not expressly declared to be void.” Thus the essential elements of a
contract are:-
1. Agreement (offer+ Acceptance)
There must be an agreement between the parties of a
contract .An agreement involves a valid offer by one party and a
valid acceptance by the other. Therefore, an agreement = offer +
acceptance.
2. Intention to create legal relationship
There should be an intention between the parties to
create a legal relationship. Otherwise there cannot be binding
agreement between them. The agreement should create a legal
obligation. An agreement of social nature is not a contract
because it should not create legal obligation.
3. Consensus ad idem (identity of mind)
The parties to a contract must agree upon the
subject matter of the contract in the same manner and in the
same sense. In other words, there must be identity of mind
among the parties regarding the subject matter of the contact.
For example, ‘ A’ has two houses one at Trivandrum and
another at Kochi. ‘A’ expresses his willingness to sell one of his
houses to ‘B’. ‘A’ had in his mind the house at Kochi for sale at
the time of placing his proposal .’B’ accepted the proposal and
while accepting the house at Trivandrum was in his mind. So
there is no consensus ad idem or identity of minds about the
subject matter , the contract is not valid.
4. Lawful consideration
Consideration means something in return. That means any
advantage or benefit moving from one party to another .In every
contract each agreement must be supported by
 consideration .When one party gives something he must gets
something in return. That is called consideration. It must be
lawful .A contract without consideration is void.
5. Capacity of parties
The parties to the contract must be competent. They must
have the capacity to enter in to a contract. Every person who is a
major and possess sound mind and who is not disqualified from
contracting is competent to enter in to a contract.
6. Lawful object
The object of an agreement must be lawful. It must not
be illegal ,immoral ,fraudulent, forbidden by law or opposed to
public policy .When the object is not lawful the contract is void.
7.Free consent
An agreement must have been made by free consent of
the parties .A consent is said to be free if it is not caused by
coercion, undue influence, fraud, misrepresentation or by
mistake.
8.Not declared to be void
The agreement might not have been expressly declared
void by any law in force in the country. In such cases, the
agreement cannot be enforced.
9. Certainty and possibility of contract
The terms of the contract must be certain and precise.
They should not be vague and they should not create any
confusion in the minds of the parties. For example, ‘A’ agrees to
sell one of his houses .’A’ has four houses. Here, the terms are
uncertain.
Similarly, the terms of agreement must be capable
of performance .An agreement to do an act which is impossible
itself cannot be enforced .For example’ A ‘ agrees to pay one
lakh rupees to ‘B’. If ‘B’ brings his son who died in the last
year. This is an impossible act and the agreement is void.
 10. Legal formalities
An oral contract is perfectly valid except in those cases
where writing, registration etc required by some statue.

“Allcontracts are agreements but all

agreements are not contract”
An agreement enforceable by law is a contract. All
contracts are agreements but all agreements are not contracts. They
must be enforceable in a court of law. Therefore, some agreements
remain as agreements only. They do not create legal obligation to
the parties. A social agreement does not give rise to legal
obligations and is not enforceable in the court of law. An
agreement to be enforceable must fulfil all the essential elements of
a valid contract. So all agreements are not contracts.
Difference between agreement and contracts
1. Every promise and every set of promises forming consideration
for each other is an agreement. A contract is an agreement
enforceable at law.
2. Offer + acceptance is an agreement. Agreement + enforceability
at law is contract.
3. All agreements are not contracts. But all contracts are
agreement.
4. Agreements my not create any legal obligation. A contract
necessarily creates a legal obligation.
 Classification of contracts
Contracts may be classified according to their legal
effects that is on the basis validity or enforceability and on the
basis of performance and on the basis of their formation.

I. classification on the basis of validity or

enforceability
On the basis of validity or enforceability contracts may be
classified as:-
1. Valid contract
2. Void contract
3. Voidable contract
4. Unenforceable contract
5. Illegal contract

Valid contract
An agreement enforceable by law is a valid contract. An
agreement becomes a valid contract when it fulfil all the essential
elements of a contract.
Void contract
It is a contract without any legal effects (sec.2 (e)). A contract
which ceases to be enforceable by law becomes void at the time
when it ceases to be enforceable. Such a contract may be valid
originally but subsequently becomes void on the happening of
some event. For example, a contract with an alien friend becomes
subsequently void when he becomes alien enemy.
Voidable contract
“An agreement which is enforceable by law at the option
of one or more of the parties there to, but not at the option of other
or others is a voidable contract” sec.2 (i). A voidable contract
remains to be good or enforceable till it is avoided by the parties
entitled to do so. A contract is said to be voidable where the
consent is not a free consent and it would be open to the party
whose consent has been so obtained to avoid the contract If he so
desires .

Unenforceable contract
An unenforceable contract is one which cannot be enforced
in a court of law because of some technical defects such as absence
of writing, registration, proper stamping, time barred etc.
Illegal contract
An illegal contract is one which either prohibited by law or
criminal in nature or which is immoral or which is against public
policy. An illegal contract is void abinitio

classification on the basis of formation

1. Express contract
2.Implied contract
3.Quasi contract
4.E-com contract
 The terms of the contract are expressed either in in words
spoken or written are called express contract. when the parties
enter into a contract either orally or in writing it is said to be an
express contract. For example A write to B I am willing to sell my
car it you for 1 lakh rupees B accepted the offer by means of
another letter it is an express contract.
Implied contract (Tacit contract)
An implied contract is one which inferred from the act
or conduct of the parties or course of dealings between them .When
the proposal or acceptance is made otherwise than in words the
contract is called implied contract. For example A gets in to a
public bus when he enters in to a bus there arise a contract with the
authorities of the bus that he will pay the prescribed fare for taking
him to his destination.
Quasi contract( constructive contract )
Under certain circumstances the law itself creates rights and
obligation to the parties .These obligations are known as Quasi
contract. Strictly speaking it is not a contract at all. This contract is
created by law and it is only resemble a contract . It is based on the
equitable principle that a person shall not be allowed to enrich
himself and unjust at the expenses of another. For example a trader
leaves some of his goods at his customer house by mistake the
customer treats the goods as his own and uses it. Then he is bound
to pay the reasonable price for the goods.
E-com contract ( Contract over internet)
These are contracts are entered in to between the parties
using internet .In electronic commerce, different parties or persons
create networks which are linked to the other network through
EDI(Electronic Data interchange).This helps in doing business
transaction using electronic mode. These are known as EDI
contracts or mouse click contracts.

classification on the basis of performance

1 Executed contract
2Executory contract
3Unilateral contract
4. Bilateral contract
Executed contract
Executed means that which is done. An executive
contractor is one in which both the parties have perform their
respective obligation. For example A contract with B to buy a
house for 1 lakh rupees . A paid 1 lakh rupees to B. it is an
executed contract.
Executory contract
An executory contract is one in which both the parties have not
yet perform their obligation or in which their remains something
to be done on both sides It is a contract which is yet to be perform.
For example A agrees to paint a picture to B for 10000 rupees .A
has not painted the picture and B has not pay the rupees it is an
executory contract.
Unilateral Contract
Unilateral contract is one in which only one party has fulfil his
obligation at the time of the formation of the contract. The other
party having fulfilled his obligation at the time of the contract or
before contract comes into existence for example A permits a
coolie to put his luggage to a carriage. The contract comes into
 existence as soon as the coolie puts the luggage .A has fulfil his
part.
Bilateral contract
A bilateral contract is one in which the obligation on the
part of the both the parties to the contract are outstanding at the
time of the contract. In this sense, bilateral contract are similar to
executory contract.

Difference between void and voidable contract

Void contract voidable contract

1. It cannot be enforced 1. It is valid and enforceable till
it is avoided

2 The defects cannot cured 2. The defects can be cured.

3.The collateral transactions 3. It does not affect the collateral
become void. Transaction.
4.It does not satisfy the requirements 4. The consent of one of the
Of the Act. Parties is not free.

Difference between illegal contract and void contract

1. A contract which is prohibited by law against the policy of law
is illegal . Any contract not enforceable by law is void.
2. Every illegal contract is void. But all voids contract are not
illegal.
 3. All collateral contracts depending on an illegal contact are void.
A void contract does not affect certain collateral transactions.
Both illegal and void contract are not enforceable by law.

Chapter 2 OFFER AND ACCEPTANCE

OFFER( PROPOSAL)

A contract in an agreement and agreement arise

when one party makes an offer in which the other accept. In
other words, there must be an offer by one party and acceptance
by the other .

offer is the term use in English law for the word

proposal in Indian law. A proposal is an expression of will or
intention. A person making the proposal expresses that he is
willing to contract on the terms stated in it.

According to section 2(a) of the contract Act ,’’when one

person signifies to another his willingness to do or abstain from
doing anything with a view to obtaining the assent of that he is
said to make a proposal.’’

The person making the offer is called offerer

or proposer and the person to whom the proposal is made called
offeree or preposee .If he accept the proposal is called acceptor.
 Essentials of a valid offer
1.The terms of the offer must be certain and definite
The terms of an offer must be definite ,certain and clear.
It should not vague.
2. It must be made with an intension to create legal relationship
The offerer must intended to create legal
obligations. If the offer is accepted a legally binding agreement
shall result. Otherwise, it is not an offer. An offer to perform a
social act or an invitation to social affairs are not valid offers.
3. Offer must be communicated to the offeree
An offer must always be communicated to the
offeree. Otherwise, it cannot be known whether the parties are
of the same mind.
4. An offer must be made with a view obtaining the assent of the
other party
An offer must be made with a view to obtaining the
assent of the person to whom it is made. Mere enquiry is not an
offer.
5.Offer may be express or implied
An express offer is one which may be made by words
spoken or written .An implied offer is one which may be
gathered from the conduct of the party or circumstance of the
case.
6.offer may be conditional
An offer can be made subject to a condition .I n that
case it can be accepted only subject to that condition. It lapses
when the condition is not accepted.
7. Offer may be to an individual or to public at large
When an offer is addressed to a definite persons or
body of persons it is called specific offer. When it is addressed
to the whole world it is called general offer.
 8. An invitation to an offer is not an offer
Quotations, advertisement for tenders, catalogue of
goods, display of goods in a showroom with price tag, and
prospectus of a company are not actual offer. They are mere
invitation to offer. They are not offers in the eyes of law because
there is no intention on the part of persons sending out the
invitation to obtain the assent of the other person.

9.offer should not contain any term the non-compliance of which

would amount to acceptance
One cannot say while making the offer that if the offer is
not accepted before a certain date, will be presumed to have been
accepted.

TYPES OF OFFER

1 Express offer
An Express offer is one which may be made by Words spoken or
written
2. Implied offer.
Implied offer is one which may be gathered from the act or
conduct of the party or from the circumstances of the case. For
example, when a person goes to a doctor for treatment, a person is
standing in a queue for getting ticket for train journey
3. Specific offer
when an offer is addressed to a definitely person or body of
persons it is called specific offer . I t can be accepted by the person to
whom it is made.
4.General offer
When an offer is address to the whole world it is called
general offer .it can be accepted by any individual. For example ,if A
issues a public advertisement that he would give five hundred rupees
to anyone who brings back his missing dog .
5.Standing offer (open offer)
An offer for a continuous supply of certain article
over a definite period is called a standing offer or open offer for
example, A by means of an offer agrees to supply raw materials to be
at a particular price for a period of 2 years it is a standing offer .
6.Counter offer
counter offer is a rejection of the original offer by making a new offer
this new offer is called counter offer For example A offers to sell
his house to B for 100000 rupees B makes another offer stating that
he will purchase it for 90000 rupees. This is a counter offer it is not a
valid acceptance .
7. Cross offer
When two parties make identical offers to each other in
ignorance of each others offer such officers are known as cross offers.
They shall not constitute acceptance of ones offer by the other. for
example A by letter offers to sell his car to B for 1 lakh rupees and
likewise B by a letter to offer to A offer to buy the same car for 1
lakh rupees .Both the letter cross each other in postal transit.
When does an offer comes to an end ?
OR
Revocation of van offer or lapse of an offer
An offer may comes to an end in the following case:-
1.By notice of revocation
An offer may be revoked by sending a notice of
revocation to the offeree at any time before it is accepted by the
offeree.
2.By lapse of time
An offer will comes to an end by the lapse of time prescribed
for its acceptance or if no such time is fixed after a reasonable time.
3. By the death and insanity of the offerer
If the offerer dies or becomes insane before acceptance
the offer comes to an end.
4. Non-fulfilment of conditions
If the offerer prescribes any condition he should be
fulfilled by the offeree .An offer is revoke if the offer is fails to
fulfil the condition.
5.By counter offer
The offer will be revoke the offeree makes a counter
offer.
ACCEPTANCE
Offer and acceptance are like the two sides of a
coin in a contract and the absence of any one will not create a
contract.

Sec.2(b) of the Contract Act defines acceptance as,” when

the person to whom the proposal is made signifies his absent there
to , the proposal is said to be accepted.” A proposal when accepted
become a promise. The offeree when he accepts the offer is called an
acceptor. For example, ‘x’ offers to sell his car to ‘y’ for fifty thousand
rupees. ‘y’ accept the offer to purchase the car for fifty thousand
rupees. This is acceptance.

ESSENTIALS OF A VALID ACCEPTANCE

1. Accepted must be absolute and unconditional

An acceptance must be unconditional. It

should correspond with all the terms of the offer.

2. Acceptance must be communicated to the offeror

If the offeree remains silent and does

nothing to show that he has accepted the offer,no contract is
formed.

3.Acceptance must be made with in a reasonable time.

Acceptance must be made within the time

allowed by the offeror.If no such time is specified it must be made
within a reasonable time
 4 . It must be made according to the mode prescribe or in a
reasonable manner
Acceptance has to be made in the manner
prescribed by the offeror, if their is no such manner is
prescribe it shall be in some reasonable manner.
5. Acceptance may be express or implied
When aaceptance is made by words spoken or
written it is an express acceptance.If it is accepted by conduct it
is implied
6. Acceptance must be made only after the offer is made
There can be no acceptance before the communication
of an offer.
7. Acceptance must be given before the offer lapses or is revoke
Acceptance must be made while the offer is in force.
8.Accepter must be aware of the proposal at the time of the
offer
It the accepter is not aware of the existence of the
offer ,no contract comes in to existence.
Acceptance cannot be implied from silence

No contract is form if the offeree remains silent and

does nothing to show that he has accepted the offer.

COMMUNICATION OF OFFER AND ACCEPTANCE

Communication of an offer is complete as

soon as it comes to the knowledge of an offeree.For example,’A’
proposes by letter to sell his house to ‘B’ for 200000 rupees.The
communication of an offer is complete when ‘B’ receives the
letter.Communication of an accept is complete.
1.As against the proposer when it is put in a course of transmission
to him or as to be out of the power of the acceptor.

2.As against the acceptor when it comes to the knowledge of the

proposor.For example ‘A’ offers by a letter to sell his house to ‘B’ at a
certain price .’B’ accept the offer by letter sent by post . The
communication of acceptance is completed as against ‘A’ when the
letter is posted and as against ‘B’ when the letter is received by ‘A’.

REVOCATION OF ACCEPTANCE

An acceptance may be revoke at any

time before the communication of acceptance is complete as against
the acceptor but not afterwards.

“ACCEPTANCE IS TO OFFER WHAT A LIGHTED MATCH IS TO A TRAIN

OF GUNPOWDER”

The offer becomes irrecoverable after its

acceptance.Here offer is considered as the train of gun powder and
acceptance is compared with a lighted match stick.Acceptance of an
offer can therefore be compared with a match stick which ignates a
train of gun powder .Ignition caused by the match stick cannot save
the train of gun powder from blowing up .Similarly an offer which
has been accepted cannot be prevented from taking effect.
CHAPTER III
CONSIDERATION
Consideration means something in
return. An agreement must be supported by consideration to
become a contract. An agreement without consideration is void.

When a party to an agreement gives

something he must get something in return from another. That
something in return is called consideration. Any benefit or advantage
moving from one person to another is called consideration.

The term consideration is defined in

sec.2(d) 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 abstain from doing something such
act or abstinence or promise is called a consideration for the
promise”

ESSENTIALS OF A VALID CONSIDERATION

1. At the desire of the promisor

The promisee must perform his part of the
promise only at the desire of the promisor.
2 .It may move from promise or from any other person
Consideration may move from the promisee
or any other person on behalf of the promisee. It means that,
there is a consideration for a promise but it is immaterial that
who has given it.
3.Consideration ma y be past ,present or future
It means that consideration may be past, present
or future.
(a)Past consideration (Executed consideration)
When the consideration for a present
promise was given before the date of the promise it is called
consideration. Eg; if the servant renders some extra services
in consideration a bonus is promised by the master. It is a
promise for past consideration.
(b)Present consideration
When the promisor receives consideration
from the promise simultaneously with the promise. It is
called present consideration.
Eg:-A agrees to sell his horse for a sum of 50000 rupees to B
accordingly. A gives the horse and B pays the cash or amount
immediately. It is a present consideration.
(b) Future consideration ( Executory consideration)
A future or executory consideration is a promise
to do or gives something in return in future for the promise.
A promise can be a consideration for another promise, when
the promiser has to receive consideration in future for his
promise it is called future consideration. Mutual promises to
marry, a promise to do a work in return for a promise of
payment are examples.
4 Consideration need not be adequate
It need not be adequate to the promise what is required
is that there must be some consideration for the promise . it
should of some value in the eyes of law even a smallest
consideration is sufficient. For example ,A agrees to sell his
house worth rs 100000 to B for rs 100000.This is a valid
contract .
5.Consideration must be real
Though, consideration need not be adequate it must
be real and not illusory. Consideration is said to be unreal and
illusory when the Act forming consideration is not real. It
cannot be valid
6.consideration must be lawful
The consideration for an agreement must be lawful. It is
said to be unlawful if it is forbidden by law ,fraudulent or
opposed to public policy. For example, Where A promises to
obtain an employment for B in the public service and B in
return promises to pay 1 lakh rupees to A. The agreement is
void as the consideration is unlawful.

No consideration No contract
Every agreement to be enforceable at law must be
supported by valid consideration. The general rule is that any
agreement without consideration is void, but there are some
exceptions to this general rule.
Exceptions

1. Agreement based upon natural love and affection

Where, an agreement is in writing and registered and
is made on account of natural love and affection between
parties standing in a near relation to each other it is valid
and enforceable even though, it is not supported by
consideration For example, A own account of natural love
and affection agrees to give some property to her daughter
B and the agreement is in writing and registered it is valid
and B can enforce it.
 2. Agreement to pay compensation for past voluntary services
If a person has already done something voluntarily
for the promiser and agrees to compensate the agreement
is valid even though ,it is not supported by consideration.
For example, A find B’s purse and hand it over to him. B
return promises to give Rs 1000. It is a valid contract

3. Agreement to pay time barred debt

Promise given by one party to pay a time barred
debt is also enforceable but the promise must be in writing
and signed by the promiser.
4 Completed gift
If any person gives certain property to another as a
gift it is valid contract .It is not affected by the rule no
consideration no contract.
5.Agency
No consideration is needed to create an agency.

STRANGER TO CONSIDERATION
(Privity of consideration)
Under Indian law a promise who is a stranger
to consideration can sue on a contract as the consideration can move
from a third party so long as there is consideration for a promise it
remains valid and it is immaterial who has furnished it.

Under English law however, a stranger to

consideration cannot sue .Consideration must move from promise
himself. For example, A pays Rs.5000/-to B in consideration of his C
promises to deliver a T.V. C is a stranger to the consideration under
the Indian law.C can enforce the promise made by B. But in English
law he promise of B to C cannot be enforced.

A Stranger to a contract
(Doctrine of privity of contract)
A stranger to a contract is a person who is not a
party to the contract. The general law of contract is that a person
who is not a party to the contract cannot sue on it. This means that
the stranger does not acquire any rights under the contract .Privity of
contract states that the contract gives rights and obligation on
contracting parties only .Therefore, a stranger to a contract cannot
sue on it. Privity means the relationship subsisting between the
parties to a contract .It means that unless there is a privity of
contract a party cannot sue on a contract.ie no one but the parties
to a contract can bound by it or entitled under it. But there are some
exceptions to this principle.

Exceptions:-
1.When a trusties created

In the case of a trust the beneficiary

may enforce the contract even though, he is a stranger to
the contract creating the trust.
Eg:- A agrees to transfer certain properties to B as a trustee
for the benefit of c .C can enforce the agreement even
though ,he is a stranger to a contract. In this case C is the
beneficiary.
2 Contract by an agent
Contracts which are entered in to by an agent can be
enforced by his principal .
Eg;- A is the agent and B is his principal. A entered in to
contract with C for purchasing goods on behalf pf his
principal. Here ,even though B is the stranger to the contract
he can enforce the contract against C
3.Family agreement
Where there is provision in the family agreement or
patrician for maintenance or marriage expenses of female
members of a family. Such members even though they are
not parties to the agreement are entitled to sue on the basis
of agreement .
Eg:-Two brothers agreed to pay Rs 5000 in equal shares to
their mother for maintenance. The brother subsequently
refuse to pay the amount. Here the mother can enforce the
promise even though she was a stranger to a contract.
4.Where a charge is created on specific immovable property
When a promise is made by one party to another
for the benefit of a third party and a charge is created on a
specific immoveable property for the performance of the
promise the third party can enforce the same.
CHAPTER IV
CAPACITY OF PARTIES
According to sec.10 of the Indian Contract Act
``the parties to a contract must be competent.’’. They must have the
capacity to enter in to a contract.

According to sec.11 every person is

competent to enter in to a contract if :-

a. He is of the age of majority.

b. He is of sound mind
c. He is not qualified from contracting by any law to which he is
subject.
According to this section the following
persons are incompetent to contract:-
a. Minor
b. Person disqualified by any law to which they are subject

MINOR
A person who has not attained the age of majority is a
minor. According to the Indian Majority Act 1875`` a person
who has not completed his 18th year of age is considered to
be a minor’’. If a minor is under the care and custody of the
court and a guardian is appointed by the court for the minor,
in such a case the minor becomes major only on the
completion of the age of 21 years.

Law regarding minor’s agreement

Or
 Effects of minor`s agreement
The various rules regarding minor`s agreement
are;
1. An agreement with or by a minor is void
The A ct clearly states that a minor is not
a competent to contract. An agreement with or by a
minor is void abinitio.
2. No ratification of agreement
An agreement with a minor is completely
void ,it cannot ratified by him even after becoming a
major
3. Minor is not bound to return the benefits received
If a minor has received any benefit
under a void agreement he cannot be asked to return or
refund it.
4. Restituition of property from a minor in case of fraud
When a minor has obtained any
property by making false representation that he is a major
,he must repay the money or return the property to the
original owner .
5. Liability for necessaries
If a person enteres in to a contract with
minor for providing necessaries he can enorce the claim.
A claim for necessaries supplied to a minor is enforceable
at law .But there is no personal liability to a minor his
property alone is liable .

Necessaries means those things that are

essential needed by a minor. Expenses on minor`s education ,food,
clothing, medical expenses etc. are treated as necessaries to as
minor.

6. Minor can be a promise or beneficiary

If a contract is beneficial to a minor it can
be enforced by him. There is no restriction on a minor
from being a beneficiary or a promise. Eg;-a minor lends
money to another and a promissory note is executed in
favour of the minor by the borrower .In such a case ,the
minor is the promise and he can enfoece the contract.
7. Minor as an agent

A minor can be appointed as an agent.

The principal will be responsible to the third parties for the
acts of his minor agent.

8.Minor as a partner

A minor cannot be a partner but he

may be admitted to the benefits of partnership.He has no
right to take part in the management of the firm.

9.Minor as insolvent

A minor cannot be declared as an agent insolvent

because even for necessaries he is not personally liable. But
his property alone is liable.

10.Minor cannot bind parent or guardian

A minor is not capeable of binding his parent or

guardian even for necessaries.

PERSON OF UNSOUNDMIND
 Sec.11 disqualifies a person who is not of
sound mind from entering in to a contract.Sec.12lays down
that.``A person is said to be of sound mind for the purpose
of making a contract if at the time when he makes it he is
capeable of understanding it and of forming a rational
judgement as to it`s effect upon it`s interest.’’
A person who is usually of sound
mind but occationally of unsound mind may make a contract
when he is of sound mind.A person of unsound mind is one
who is suffering from permanent or temporary mental
disorder.Hence,idiots,lunatics,and drunken persons are
considered to be person of unsound mind.

Idiots
An idiot or a natural fool is a person who has no
understanding capacity.All agreements other than those of
necessaries of life with idiots are absolutely void.
Lunatics
A person whose mental powers are derange due
to some mental strain is called is lunatic. Luntatic will of
sound mind in some intervals and they will be of unsound
mind in some other intervals.

Drunnken persons
Any contract made during drunkness is
void.Aperson who is in a state of intoxiation is incapeable of
entering in to a contract and similar to that of a lunatic.
 All these persons stand in the
capacity as minors and their contracts are void.

PERSON DISQUALIFIED FROM

CONTRACTS
1.Alien enemy
An alien living in India is competent to
contract .But if a war is declared an alien enemy cannot
enter in to any contract with an Indian citizen.
2.Foreign sovereign and ambassadors
They can enter in to contract but they cannot be
sued in our court without the permission of the central
government.
3.Convict or Felons
A convict while undergoing imprisonment is
incapeable of entering in to a contract.
4.Insolvent
An insolvent cannot enter in to a contract as his
property vests in the official receiver or official assigner.
5. Corporations or companies
A company is an artificial person creating by law. It
has no physical existence but has only a legal existence. it is
competent to enter in to a contract but only through human
agencies.A contract entered in to by a company will be valid
only if it is within the powers conferred by the memoran
dum of associations.
6.Married women
In India ,a married women has got every night to
acquire properties and enter in to a contract.
CHAPTER V
FREE CONSENT
In order to create a valid contract there
should be perfect identity of mind ie consensus ad idem
between the parties .Hence,their should be consent
between parties and the consent should be free.
Consent
Section 13 of the Contract A ct defines consent as ``two
or more persons are said to consent when they agree upon
the same thing the same sence’’.
FREE CONSENT
According to sec.14 of the contract Act.
``consent is said to be free when it is not caused by coercion,
undue influence ,fraud, misrepresentation,or by mistake’’.
Here, mere consent is not sufficient to
constitute a contract. The consent should be free, the
absence of free consent affects the validity of the contract.
I.Coercion
When a person obtains consent of the other party by
force or by threat and imprisonment is said to use coercion
Sec.15 of the Act define ‘’coercion as committing or
threating to commit any act forbidden by the Indian Penal
Code or unlawful detaining or threating to detain any
property to the prejudice of any person with the intention of
causing any person to enter in to an agreement”.A threat to
committ suicide with the intention of causing any person to
enter in to an agreement is an act of coercion.

Effects of coercion: According to sec.19 provides that when

a consent to a contract is obtained by coercion is voidable at
the option of the party whose consent is so obtained. The
person to whom money had been paid under coercion must
repay or return it.

Duress:
Coercion in India is known as duress in England. If the
consent of the other party to a contract is obtained by fear
caused by threats of bodily harm it is known as duress,
unlawful detention of goods or property is coercion but not
duress.

II. Undue Influence

Sec -16 of the Indian Contract Act defines undue
influenceas ‘’ a contract is said to be induced by undue
influence where the relations subsisting between the parties
are such that one of the parties is in a position to dominate
the will of the other and uses that position to obtain an
unfair advantage over the other’’.
It is the domination of a weak mind by a
strong mind by a strong mind when the relationship
between the parties are such that one of the parties can
dominate the will of the other.It is an influence which
 compel another person to do something which he would not
have done otherwise.Such relationship are;-
a) Advocate and client
b) Father and son
c) Doctor and patient
d) Master and servant
e) Trustee and beneficiary etc..

Effect of undue influence

Where consent is caused by undue

influence the contract is voidable at the option the party
whose consent was so caused.Such a contract may be
set aside either absolutely or subject to the restitution
of the benefit.

Difference between coercion and undue influence

1. Coercion involves the use of physical force while undue
influence id due to mental or moral pressure
2. Coercion involves a criminal act while there is no criminal actin
undue influence
3. In the case of undue influence there must be same relationship
between the parties by which one party is in a position to
dominate the will of the other.Coercion need not proceed from
the promise it may proceed from a stranger.

III. Misrepresentation
 The term representation refers to a
statement of fact made by one party to the other either
before or at the time of contract regarding some matter
relating to the contract.When a representation is
wronglymade it id called misrepresentation.So
misrepresentation is an untrue statement made by one party
to the otherwhich will indue the other party to enter in to a
contract.

Misrepresentation may be either

innocent or fraudulent.

a) Innocent misrepresentation
It is a false statement which a person who
makes it honestly believes it to be true or he does not
know that it is false.
b) Wilful or fraudulent misrepresentation

A Fraudulent misrepresentation known as

fraud.A person making a false statement knowing it to be
false it is called fraudulent misrepresentation.

Effects of misrepresentation;-
When a misrepresentation has been
made the aggrieved party:-

a)May avoid or rescind the contract or

b)May insist on the misrepresentation being made
good.
IV FRAUD
Fraud is the wilful representation made by
a party to contract with the intention to deceive the
other party or to induce such party to enter in to a
contract.

According to sec.17 fraud means and

includes any of the following acts committed by a
party with intent to deceive another party or to
induce him to enter in to contract.
a)A false suggestion as to a fact known to be false.
b)The active concealment of fact with knowledge of
the fact.
c)A promise made without any intention of
performing it.
d)Doing any other act fitted to deceive
e) Doing any such act as the law specially declairs to
be fraudulent.
Effect of fraud
When consent to an agreement is
caused by fraud the contract is voidable at the
option of the party whose consent was so
caused.The aggrieved party can avoid the contrtact
And can claim for damages.
 Difference between fraud and misrepresentation
1. A false statement made with an intention to
deceive the other is fraud. A false statement
without such intention to deceive would be
misrepresentation.
2. In case of misrepresentation the person making
suggestion believes it to be true, but in case of
fraud the person making false suggestion known
it to be false.
3. In case of fraud the aggrieved party has the right
to claim damages in addition to his right to avoid
the contract. In case of misrepresentation the
aggrieved party can avoid the contract.
4. Misrepresentation is not considered as a criminal
act but fraud may amount to can offence thus,it
is a criminal act.
Mere silence is not a fraud
Mere silence of a party as to certain fact
does not generally amount to fraud. A party to the contract is
under no obligation to disclose the whole truth to the other
party. There no duty to disclose facts which are within the
knowledge of both the parties.
Exceptions;-
There are two exceptions to the rule that mere
silence is not a fraud
1.Where circumstances creates a duty on the part of person
keeping silence to speak.
Eg;-In case of life insurance, where a policy holder concealed
the facts the contracts get cancealed.
2.Where silence in itself is equalent to speech.

V MISTAKE
Mistake mean misconception or error.A
mistake means that parties intending to do one
thing have by intentional errors done something
else.That is,the parties have different things in mind
as regards the material fact or subject matter of the
contract.I general terms it implies wrong belief
about existence of sertain facts.
Mistake may be classified as;-
a.Mistake of fact
b.Mistake of law
Mistake of fact : may be classified in to

1) By lateral Mistake

2) Unilateral Mistake

By lateral Mistake : where both the parties are

under a mistake as to a matter of fact essential
to the agreement. It is the case of by lateral
 mistake. In this, contract both the parties are
under a mistake and the agreement is void

Unilateral Mistake : If there is a mistake on the

part of one party alone and the other party does
not know of the mistake it is called unilateral
mistake.If one party alone is under a mistake of fact
the contract is not voidable.

Eg: A offers to sell his house to B for 50000/- B

accepts the after with the intention that the
amount is Rs 15000/- Afterwords,B cannot avoid
the contract on the ground of mistake.

b. Mistake of law : It may be two Kinds

1. Mistake as to Indian law
2. Mistake as to foreign law

Mistake as to Indian law (Mistake of the

law of the land)
Every citizen is deemed to know
the law of his own country. In a contract a
person cannot escape from his obligation on the
ground that he has done a particular act in
 ignorance of law. Here, ignorance of law is not an
excuse and the contract cannot be avoided.

Mistake as to foreign law

Ignorance of foreign
law is execusable. No one is expected to be familiar
with foreign law.Ignorance of foreign law is treated as
mistake of fact the agreement in such a case i

CHAPTER VI
Legality of object and consideration
If an agreement to be enforced in a court of
law both consideration and object of the agreement
must be lawful. When the consideration or object is
unlawful the contraci is void.
For example 1:-A agrees to transfer his property to his
near relative B for a certain sum with a view to cheat his
creditor C. Here, consideration is lawful the object is
unlawful and the agreement is void.
For example 2:-A promises to obtain job for B as a
consideration for it promises to pay rs.50000/ to
A .Here, object may be lawful but consideration is
unlawful. Hence, agreement is void.
 Therefore,in order to
constitute a valid contract both consideration as well as
object must be lawful.
According to sec.23 of the contract Act’’the
object or considerationof an agreement is lawful unless it is
forbidden by law,or it would defeat the provisions of any law
or it`s fraudulent or involves or cause any injury or damage to
the person or property of another or the court
regards it as immoral or opposed to public policy.’’
An agreement would be unlawful:-
a)If it is forbidden by law
If the object or consideration of an agreement is
forbidden by law the agreement is void .For example;-X
agrees to sell certain goods to Y after knowing every well the
goods are to be smuggled out of the country Here the object
is forbidden by law
b)if it would defeat any of the provisions of law
If the object or consideration of an agreement
is of such a nature that if permitted it would defeat
provisions of any law the agreement is void.
c)If it is fraudulent
The agreements which are entered in to promote
fraud are void.If the object of an agreement is fraudulent it is
void.
d)If it involves injury or damage to the person or property of
another
The object or consideration of an agreement will
be unlawful if it tends to injure the person or property of
another.\
Eg:An agreement to pull down another’s house is unlawful.
e)If the court regrds it us immoral- Where the consideration
or object of an agreement is such that the court regrds as
immoral it is void.
f)If the court regards it as opposed to public policy
An agreement which tends to promote
corruption or injustice or against the interest of the public is
considered to be opposed to public policy.

Agreement opposed to public policy

Any agreement which is considered
injurious to the welfare of the society will be deemed to be
opposed to public policy. Public policy is a rule of law which
lays down that no person shall do anything which is not for
the good of the society. Some of the agreement have been
declared by the court as opposed to public policy and they
are:-
1.Agreement for the sale of public offices and titles
 Where the object of an agreement is to sell or
transfer a public office from one person to another or to
secure honor or titles for monetary consideration, the
agreement is considered as oppossed to public policy and
void.
2.Trading with an alien enemy
An agreement made with an alien enemy in
time of war is illegal on the ground of public policy.
3.Agreement for suppressing or stifling prosecution
An agreement for suppressing
prosecution are not enforceable in a court of law since they
are opposed to public policy. Any person who commits a
crime must be punished.
4.The agreement in restrained of legal proceedings (sec.28)
If the object of an agreement is to
restrain an individual from going to a court of law for relief
such an agreement is void since it is opposed to public policy.
5.Agreement in restraint of marriage
Every person has the freedom to
marry .The law considers marriage and married status as the
personal right of every man. If the object of an agreement is
to restrain a person from marriage such agreement is void.
Since it is opposed to public policy .
6.Agreement in restraint of parental rights
 Any agreement which restraint the parental
right is void.The guardianship cannot be bartered away by
any agreement under the law.

7.Agreement in restraint of personal liberty

Under law, everyone is entitled to enter in to
any contract which is lawful. A contract which restraints
individual liberty is illegal and void.
8.Agreement by way of maintenance and champerty
Maintenance may be defined as an agreement
in which a person promises to maintain a suit in which he has
no interest. Champerty is an agreement whereby one party is
to assist another in recovering property and is to share the
proceeds of the action .Such agreements are void has being
against public policy.
9.Marriage brokerage agreement
Agreement to procure marriages for
reward are void on the ground that marriage ought to
proceed from the free and voluntary decision of the parties.
10.Agreement in restraint of trade
Where ,the objects of an agreement is
to interfere with the freedom of a person to carry on any
lawful trade or profession the said agreement is called
agreement in restraint of trade .An agreement seeking to
restrain a person from exercising a lawful trade ,profession or
business of any kind is void.

Exceptions to the rule an agreement in restraint of

trade is void ;
The rule that an agreement in restraint of trade
is void .It is not true in all cases. Exceptions are;-
a)Sale of goodwill
A person who sells the goodwill of a
business may agree with the buyer not to carry on the similar
business within the specified local limits.
b)partners agreement
i)An agreement between the partners that they will not
carry on any business other than that of the firm while they
continue to be partners shall not be void.
ii)An agreement between the outgoing partner that he will
not carry on a similar business within a specified period or
within the specified local limits.
iii)Partners may enter in to an agreement on dissolution of
the firm all or some of them shall not carry on similar
business within a specified period or within specified local
limits.
C)P rice maintenance agreement
An agreement between manufactures
not to sell their goods below a particular price is not void.
d)Service agreements
Restrictions during the period of service shall not
be void .An agreement of service by which an employee bind
himself during the tenure of his service not to enter in to any
other service shall be valid and will not amount to restraint of
trade.

CHAPTER –VII
Wagering and contingent contract
Wagering Agreements
Sec.29 provides that an agreement which is not
certain is void. Wager may be defined as ,’’ an agreement to
pay money or money`s worth on the happening of a specified
uncertain event” (sec.30.).According tosec.30 an agreement
by way of wager is void ,generally a wager is a bet. It is a
game of chance in which the chance of either winning or
losing is depended on uncertain event. It implies that a
person will be required to pay money if an uncertain event is
determined in one way and will receive certain amount of
money if it is determined in other way.Eg:-A and B agree that
if it rain on a particular day A will give B rs.100/- and if it
does not rain on that day B will give a rs.100/-n. It is a
wagering agreement.
Essentials
1.It must contain a promise to pay money or money`s worth.
2.The event must be uncertain it may or may not happen
3.The two persons agree that depend on the determination
of that event in one way ,one shall pay money to the other
and viceversa.
4.Their must be mutual gain or lose .
5.Neither of the parties should have any control over the
event.
6.The parties must not have any other interest in the
happening of the event except the sum of money which
either of them will win or loss
Effect of wagering agreement
Wagering Agreement have been
declared to be void in India.No suit shall be brought for
recovering anything alleged to be on or any wager.
Therefore, no one can recover the amount promised under
such a contract.
Wager and insurance
Contracts of insurance resemble
to a large extent to contract of wager. But ,contract of
insurance are of different character. The differences are;-
1.Contract of insurance is a contractof indemnity while a
wagering contact is not contract of indemnity,
2.A wager will arise only if one party loses and another gains
while in insurance contract contract no winning or losing.
3.In insurance contract there is insurable interest but in
wagering contract there is no insurableinterest
4.A contract of insurance is legal and enforceable while a
wagering contract is void.
Contingent contract
Contingent means conditional and the
condition is uncertain .A contract is said to be contingent
when it`s performance depends upon the happening or non-
happening of future event.
Sec.31 of the Indian Contract Act defines,’’ a contract to do
or not to do something if some event collateral to such
contract does or does not happen.” A contract is said to be
contingent when it`s performance depends upon the
happening or non- happening of a future event ;Eg- A
promises to pay one lakh rupees to B if b `s house is
destroyed by fire.
Essentials
1. There must be contract to do or not to do something
2. The performance of the contract depends upon the
happening or non-happening of some future event.
3. The happening or non- happening of such future event
must be beyond the powers of the parties.
4. The happening or non-happening of such uncertain
event should not form the essential part of the contract
it should only be collateral or incidental to it.

Rules regarding contingent contract

1. If a person promise to do something on the
happening of an event is bound to perform it only if
that event happens.
2. Where a contingent contract s to be perform if a
particular event does not happen it can be enforced if
that event becomes impossible.
3. A contract to do or not to do something if a specified
uncertain event happens within a fixed time becomes
void if that event does not happen within the the time
fixed.
4. If the event is an inherent impossibility contract is
void

Difference between wagering and contingent

Wagering Contingent

Mutual promises are Mutual promises are not

necessary necessary
It is essentially of It must not been of
contingent nature wagering nature

Future event is the Future event is only

determine factor collateral

It is void It is good and valid

Neither party intends to Parties intend to perform

perform the their obligation
Contract
 CHAPTER VIII
Performance of a contract
Performance of a contract
A contract creates legal obligations to the
parties .Performance of a contract means carrying out of
these obligations. Whenthe terms of a contract are
fulfilled by the respective parties to the contract the
performance of a contract takes place.
Sec.37 states that ,``the parties to a
contract must either perform or offer to perform their
respective promises unless such performance is
dispensed with or excused. That means the parties must
either perform or offer to perform their respective
obligations. It may sometimes happen that a person
who is bound to perform a promise will be ready to
perform and will offer to perform his promise at the
proper time and place but the other party may refuse
to accept the performance this is known as tender or
attempted performance. In such a case the promiser is
not responsible for non-performance.Thus performance
may be actual or attempted .
 The tender to be valid it must have some
essentials;-
a) The tender must be unconditional
b) It must be made at the proper time and place
c) It must be of proper quantity
d) It must be made to the proper person itself
e) It must be in the proper manner etc.

Who may perform the contract

The contract may be performed by:-
a)Thepromiser himself
If a contract involves the exercise of
personal skill and knowledge of the promiser. It must be
performed by the promiser himself and not by other
person
Eg;-A promises to paint a picture to B ,in this case a
alone must perform his contract personally because it
requires personal skill
b)Agent
When the personal skill is not necessary his
representative can perform it.
c)Legal representative
If the promiser dies before the performance of
the contract his legal representative can perform if it
personal skill is not necessary.
d)Third person
If the promise accept performance of the
promise from a third party the contract is discharge
(sec.41)
Who can demand perform
It is only the promisor who can demand
performance of the promise. In certain cases,a third
party can also enforce a promise. In case of death of the
promisor his legal representatives can demand
performance.

Time and place of performance

It is the parties of the contract to
determine the time and place of performance .The
promisor must be ready to perform it at the time and
place fixed.Where time and place is not fixed it must be
perform within a reasonable time and at a reasonable
place.Perform,ance3 must be in the manner prescribed.
The time and place is the essence of performance of a
contract .Sometimes, parties fails to perform the
contract at the proper time and place he will be
responsible for non-performance.
Joint promises
When two or more persons are bound to perform a
contract together or jointly it is called a joint
promise.Whentwo or more persons made a joint
promise all such persons must jointly fulfill the promise.
If all of the promisors die the legal representatives of all
of them fulfill the promise jointly.

Reciprocal promise
Promises which from the consideration or part
of the consideration for each other are called reciprocal
promises. When A promises to do or not to do
something in consideration of B `s promise to do or not
to do something. The promises are called reciprocal
promises. Where a contract consist of reciprocal
promises to be perform simultaneously.no promisor
need perform his promise unless the promise is ready
and willing to perform his reciprocal promise.
Assignment of contract
If any contracting party transfers his right or liability
to a third party it is technically called assignment of
contract .It is a fundamental principle of law that
contractual rights can be assigned but not liabilities
CHAPTER –IX
Discharge of contract
It means the termination of the contractual
relationship between the parties. When a contract is
discharged all the rights and liabilities of the contracting
parties and their relationship comes to an end. A
contract may be discharge in any of the following case.
(a) Discharge by performance
(b) Discharge by agreement
(c) Discharge by laps of time
(d) Discharge by operation of law
(e) Discharge by impossibility of performance
(f) Discharge by breach of contract
(a) Discharge by performance :
It is the usual way of discharge of a
contract .When the contractis duly performed
by both the parties the contract comes to an
end.

(b) Discharge by agreement

Since a contract is created by means of an

agreement it may also be discharged by means
of another agreement between the parties.
Contract may be discharge by agreement in the
following ways;-
1)By novation
Sometimes, the contracting parties may
agree to substitute a new contract in the place of
the original contract between themselves or
between different parties.
Eg;-A owes rs.5000/- to B it is agreed between A
and B that C will pay the amount to B . In this
case, the contract between A and B is discharge
and a new contract is substituted.

2) Alteration
By mutual agreement parties to a
contract can alter one or more terms of the
contract. By such alteration the contract is
discharge.
3)Rescission (sec.64)
Rescission means cancellation of
the contract .If the parties to a contract agree to
rescind the contract .In this case, the original
contract need not be perform.
4)Remission
Remission means acceptance of a
lesser performance than what was actually due
under the contract.I t is acceptance of a lesser
sum than what was contracted for.
Eg:- A owes rs.5000/- to B agrees to accept a
lesser sum namely rs.4000/- instead of
rs.5000/-.As soon as rs.4000/-paid by A the
whole amount debt of rs.5000/-is discharge.
5)Waver
It means abandonment of rights under a
contract .A party to a contract may waive his
rights under the contracts where upon the other
party is released from his
Obligation and the contract is discharged.
6) Merger
This take place when an inferior right to a
party under a contract merges with a superior
right under the contract. Now ,the previous
contract with lesser rights is said to be merged
with subsequent contract.
Eg:-A is a owner of a house in which B residing as
tenant subsequently B buys the house and the
property from A .I n such a case B`s lesser right
as lease will be merged in to his superior right as
 owner. Hence the existing contract automatically
discharged.
c) Discharge by laps of time
Every contract must be performed
within specified period , it is called the period of
limitation. If the contract is not perform and the
promisee fails to take any action within a period
of limitation, the contract is discharged by laps
of time.
d)Discharge by operation of law
A contract may be discharged by
operation of law .In otherwords,law itself
discharge the contract which is based upon
personal skill and qualification of the promisor is
terminated on the death of the promisor .If a
person is adjudicated as insolvent by a court all
his rights and liabilities as vested with the official
receiver and he is discharged from all hia
liabilities.
e)Discharge by impossibility of performance
 A contract will be discharge when the
performance becomes impossible .Impossibility of
performance may exist either at the time of the
contract or subsequent to the contract.

a)Impossibility at the time of formation of the contract`

When at the time of formation of the
contract both the parties are aware of impossibility of
performance the contract becomes void but when the
parties are not aware of the fact that performance is
impossible the contract is void when such sn
impossibility is discovered.
b)Impossibility which arises subsequent to the
formation of the contract ( it is also known as
supervening impossibility)
Impossibility which arises subsequent to the
formation of the contract. It is known as supervening
impossibility. As a general rule impossibility will not
excuse the promisor and in case of non-performance the
promisor is liable to pay damages to the
promise.But,there may be some cases in which non-
performance may be due to some events beyond the
controlof the parties.In such cases,the contract will be
discharge. This is called doctrine of supervening
impossibility.The following are the cases;-
a)Destruction of subject matter
b)Death or personal incapacity of the promisor
c)Contract becomes subsequently illegal
d)Non-existance of a particular state of thing.

f) Discharge by breach of contract

Breach means failure of a party to perform his
obligation under a contract.When a promisor has
committed a breach of contract. The breach of contract
may be actual or anticipatory.
1.Actual breach of contract
 Actual breach may take place at the
time when the performance becomes due and in such
cases one party fails or refuse to perform his obligation.
2. Anticipatory breach of contract
When a party to a contract refuses to
perform his obligation before the due date of
performance..It is called anticipatory breach. If a person
promises another to do a particular act in a particular
date and he repudiate his part of obligation even before
the due datearaises. It is called anticipatory breach.It is
called anticipatory breach .It is premature destruction of
the contract. Eg;-Refudication of betrothal is an
anticipatory breach of a contract of marriage.

Chapter –X
Remedies for Breach of contract
If one of the parties to a contract fails to
perform his part of contract he is said to have
committed breach of contract.In case of breach of
contract the law provides the following remedies to an
injured party against the party committed breach.
1.Rescission of the contract
2.Suit for damages
3.Suit for specific performance of the contract
4.Suit for injunction
5.Suit for quantum meruit
6.Restitution
1.Rescission of the contract
Recession means cancellation of the
contract when all or some of the terms of the contract
are cancelled, rescission of the contract takes
place.When a contract is broken by one party the other
party may rescined the contract.In such a case he is free
from all his obligations under the contract.
2.Suit for damages
Damages means monitory compensation
payable by the defaulting party to the injured in the
event of breach of contract.Damagesare to be awarded
for losses which naturally arose from the breach..The
damages are given by way of compensation for the loss
suffered by the party and not for the purpose of
punishing the other party .Damages may be of different
types.
3.Suit for specific performance
In some cases the aggrieved party will not be
satisfied by mere damages. Specific performance means
actual performance of the particular contract as per
agreement. Specific performance will be granted in
those cases where compensation will not be an
adequate remedy for actual damages cannot accessed
accurately.
4.Suit for injunction
An aggrieved party can sue for injunction
order which is an order of the court preventing or
restraining a person from doing a particular act.
Eg:-A agrees to sing for one year at B`s theater and
further agrees that he will not sing any other place
during the periods. Here,B can obtain an order of
injunction preventing A from singing anywhere else.
Such order is called injunction.
5.Suit for quantum meruit
 The term quantum meruit means as much as
earned or as much as merited. When a person has done
some work under a contract and the other party
repudicates the contract.In such a case,the party who
has performed the work can claim remuneration for the
work he has already done.This is called the docrine of
quantum meruit
Eg.A agrees to do certain work for B for ten thousand
rupees .If A perform 50% of his work and B resign the
contract. In such a case, A can claim rs.5000/-from B for
the work he had already performed.

Types of Damages
1.General or ordinary damages
These are damages naturally araise in the
usual course of breach of contract .These damages are
awarded with a view to compensate the actual loss
suffered by the injured party.\
2.Special Damages
Special damages are those which arise from the
breach of contract. Under special circumstances where
the party where the party expect to make specially large
profits but they would sustain a special loss in case of
breach of contract.
Eg;-The loss of profit arising out of delivery of a
machinery later than the date agreed upon would fall
under special damages.
3.Nominal damages
Where the injured party has not suffered any loss
due to breach of contract .The court may award a
nominal sum as damages that is called nominal
damages.
4Excemplary or vindictive damages
These damages are awarded with a view to
punish the defaulting party who injured the feelings of
the others and not merely for awarding compensation
such damages are awarded:-
a)In the case of breach of promise to marry,the court
awards execemplary damages taking in to consideration
the feelingsof the injured party.
b)When the banker refuses to honour the cheque of the
customer while he has sufficient balance in his account.
5.Liquidated damages and penality
Genarally he court will fix the damages when the
contract is broken.But sometimes, parties
themselvesehile entering in to a contract may fix the
amount of damages that would be payable in case of
breach.
If the amount fixed is a genuine pre-estimate
of the loss in case of breach it is known as liquidated
damages.
The penalty is a sum which is
disproportionate to the damage or loss likely to be
caused in the case of breach .If the sum payable is so
large as to be far in excess of the actual damages. I t is
called penality.
Frustration
Frustration may be defined as’’, the premature
termination of the contract owing to the change of
circumstances which are entirely beyond the control of
the parties .”In some cases,the performance of contract
will be discharged due to some events beyond the
control of the contracting parties.This principle is known
as doctrine of frustration.
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