UNIT 1

THE INDIAN CONTRACT ACT, 1872

1.1           The Indian Contract Act, 1872—Meaning, characteristics and kinds of contract, void & voidable contract, discharge of contract, quasi contract, contract of bailment, pledge and agency.

INTRIODUCTION

The Indian Contract Act, 1872 prescribes the law relating to contracts in India and is the key act regulating Indian contract law.

The Act is based on the principles of English Common Law. It is applicable to all the states of India. It determines the circumstances in which promises made by the parties to a contract shall be legally binding.

Under Section 2(h), the Indian Contract Act defines a contract as an agreement which is enforceable by law.

OBJECTIVE OF THE ACT

The objective of the Contract Act is to ensure that the rights and obligations arising out of a contract are honored and that legal remedies are made available to an aggrieved party against the party failing to honor his part of agreement. The Indian Contract Act makes it obligatory that this is done and compels the defaulters to honor their commitments.

EXTENT AND COMMENCEMENT

• It extends to the whole of India except the State of Jammu and Kashmir
• It came into force on the first day of September, 1872.
• The sale of Goods was repealed from this Indian Contract Act in 1930. Contracts relating to partnership were repealed in 1932.

DEVELOPMENT

The Act as enacted originally had 266 Sections, it had wide scope

• General Principles of Law of Contract – Sections 01 to 75
• Contract relating to Sale of Goods – Sections 76 to 123
• Special Contracts- Indemnity, Guarantee, Bailment & Pledge and Agency – Sections 124 to 238
• Contracts relating to Partnership – Sections 239 to 266

At present the Indian Contract Act may be divided into two parts:

• Part 1: deals with the General Principles of Law of Contract Sections 1 to 75
• Part 2: deals with Special kinds of Contracts such as Contract of Indemnity and Guarantee and Contract of Bailment and Pledge

LAW OF CONTRACT:

1. Offer section 2(a):

When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.

• May be express or implied
• May be positive or negative
• Must intend to create legal relationship
• Terms of offer must be certain
• May be made to a specific person or class of persons or to any one in the world at large
• Must be communicated to the offeree
• Must be made with a view to obtain the assent
• May be conditional

2. Acceptance section 2(b):

When the person to whom the proposal is made, signifies his assent there to, the proposal is said to be accepted.

3. Promise section 2(b):

When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted, becomes a promise.

The person making the proposal is called the “Promisor” and the person accepting the proposal is called the “Promisee”.

4. Promisor and promise section 2(c):

When the proposal is accepted, the person making the proposal is called as promisor and the person accepting the proposal is called as promisee.

5. Consideration section 2(d):

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.

6. Agreement section 2(e):

Every promise and every set of promises, forming the consideration for each other is an agreement.

An agreement not enforceable by law is said to be void.

7. Contract

An agreement enforceable by law is a contract.

STEPS INVOLVED IN THE CONTRACT

1. Proposal and its communication
2. Acceptance of proposal and its communication
3. Agreement by mutual promises
4. Contract
5. Performance of Contract

ESSENTIAL REQUIREMENTS OF A VALID CONTRACT

• Offer and its acceptance
• Free consent of both parties
• Mutual and lawful consideration for agreement
• It should be enforceable by law. Hence, intention should be to create legal relationship. Agreements of social or domestic nature are not contracts
• Parties should be competent to contract
• Object should be lawful
• Certainty and possibility of performance
• Contract should not have been declared as void under Contract Act or any other law

ESSENTIALS OF A VALID ACCEPTANCE

• Acceptance must be absolute and unconditional
• Acceptance by usual mode as desired by the offer or
• Acceptance cannot precede the offer
• Acceptance may be express or implied
• Acceptance must be given within a reasonable time
• Acceptance must be by an ascertained person (offeree)
• Offer cannot be accepted after it was rejected unless it is renewed
• Silence does not imply acceptance
• Acceptance must be made before the lapse or revocation of the offer
• Acceptance of offer means acceptance of all terms attached to the offer

8. Reciprocal Promises 2(f):

Promises which form the consideration or part of the consideration for each other are called 'reciprocal promises'.

9. Void agreement 2(g):

An agreement not enforceable by law is void.

10. Void and Voidable Contract

An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract

A contract which ceases to be enforceable by law becomes a void contract.

TERMINATION OF OFFER

• By notice of revocation
• By lapse of time
• By failure of the acceptor to fulfil a condition precedent to acceptance
• By failure to accept according to the mode prescribed
• By death or insanity of the offeror
• By rejection

Types of Contract

* On the premise of validity

* Valid Contract: An agreement which is enforceable by law, could be a valid contract.

* Void Contract: The contract which is not any longer enforceable within the court of law could be a void one.

* Voidable Contract: A contract in which one among the parties to the contract features a option to avoid performing his/her part, then it's termed as a voidable contract. When the consent of the party isn't free, the contract becomes voidable, at the choice of the aggrieved party.

* Illegal Contract: A contract which is forbidden by law is termed as an illegal contract.

* Unenforceable Contract: The contract whose substance is nice, but because of some issues, it's not enforceable, is termed an unenforceable contract.

* On the premise of formation

* Express Contract: When the terms of the contract are expressed orally or in writing, it's called an express contract.

* Implied Contract: The contract which is constituted by implication of law or action, is an implied one.

* Quasi-Contract: These aren't a true contract, but are just like a contract, which is created out of some circumstances.

* On the premise of Performance

* Executed Contract: When the contract is performed, it's called an executed contract.

* Executory Contract: When the requirement during a contract, is to be performed in future, it's described as an executory contract.

* Unilateral Contract

* Bilateral Contract

To sum up, agreements are termed as a contract, if it comprises all the essential elements that constitute a contract.

Types of Contracts On the idea Of Validity

Chapter 2 of the Indian Contract Act, 1872 discusses the voidable contracts and void agreements. On the premise of validity or enforceability, we've got five differing kinds of contracts as given below.

Valid Contracts

The Valid Contract as discussed within the topic on “Essentials of a Contract” is an agreement that's legally binding and enforceable. It must qualify all the essentials of a contract.

Types of Contracts - supported Validity

Void Contract Or Agreement

The section 2(j) of the Act defines a void contract as “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”. This makes all those contracts that aren't enforceable by a court of law as void.

Example: A agrees to pay B a sum of Rs 10,000 after 5 years against a loan of Rs. 8,000. A dies of natural causes in 4 years. The contract is not any longer valid and becomes void because of the non-enforceability of the agreed terms.

Voidable Contract

These kinds of Contracts are defined in section 2(i) of the Act: “An agreement which is enforceable by law at the choice of 1 or more of the parties thereto, but not at the choice of the other or others, could be a voidable contract.” this might seem difficult to wrap your head around but consider the subsequent example:

Suppose an individual A agrees to pay a sum of Rs. 10,0000 to an individual B for an antique chair. This contract would be valid, the sole problem is that person B may be a minor and can’t legally enter a contract.

So this contract may be a valid contract from the purpose of view of A and a “voidable” contract from the purpose of view of B. As and when B becomes a serious , he may or might not comply with the terms. Thus this can be a voidable contract.

A voidable contract may be a Valid Contract. During a voidable contract, at least one among the parties needs to be sure to the terms of the contract for instance , person A within the above example.

The other party isn't bound and should prefer to repudiate or accept the terms of the contract If they so prefer to repudiate the contract, the contract becomes void. Otherwise, a voidable contract may be a valid contract.

Illegal Contract

An agreement that results in one or all the parties breaking a law or not conforming to the norms of the society is deemed to be illegal by the court. A contract against public policy is additionally illegal.

Several examples could also be cited for example an illegal contract. For instance, A agrees to sell narcotics to B. Although this contract has all the essential elements of a valid contract, it's still illegal.

The illegal contracts are deemed as void and not enforceable by law. As section 2(g) of the Act states: “An agreement not enforceable by law is claimed to be void.”

Thus we are able to say that all illegal contracts are void but the reverse isn't true. Both the void contracts and illegal contracts can’t be enforceable by law. Illegal contracts are literally void ab initio"> initially (from the start or the beginning).

Also due to the criminal aspects of the illegal contracts, they're punishable under law. All the parties that are found to have agreed on an illegal promise are prosecuted in an exceedingly court of law.

Unenforceable Contracts

Unenforceable contracts are rendered unenforceable by law because of some technical. The contract can’t be enforced against any of the 2 parties.

For example, A agrees to sell to B 100kgs of rice for 10,000/-. But there was a large flood in the states and every one the rice crops were destroyed. Now, this contract is unenforceable and can't be enforced against either party.

VOID AND VOIDABLE CONTRACT

Void Agreement:-Void Contract means a contract doesn't exist in any respect. The law can't enforce any legal obligation to either party especially the disappointed party because they're not entitled to any protective laws as far as contracts are concerned. An agreement to hold out an illegal act is an example of a void contract or void agreement. For instance , a contract between drug dealers and buyers may be a void contract just because the terms of the contract are illegal. In such a case, neither party can move to court to enforce the contract.

As per Section 2(g) of The Indian Contract Act , 1872 “An agreement not enforceable by law is claimed to be void”, and as per Section 2(j) of The Act “A Contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”. Thus Void Contracts are often of following two types :-

(i) Void ab initio: - void-ab-initio i.e. unenforceable from the very beginning

(ii) Void because of the impossibility of its performance: - A contract also can be void because of the impossibility of its performance. E g: If a contract is made between two parties A & B but during the performance of the contract the object of the contract becomes impossible to attain (due to action by someone or something aside from the contracting parties), then the contract can't be enforced within the court of law and is thus void.

(iii) Void agreements as per the provisions of Indian Contract Act , 1872 :-

# Any agreement with a bilateral mistake is void.(Section 20) :- Where both the parties to an agreement are under an error on matter of fact essential to agreement , the agreement is void , for ex. A agrees to buy from B a particular horse. It seems that the horse was dead at the time of the bargain , though neither party was conscious of the actual fact . The agreement is void .

But a contract isn't voidable merely because it had been caused by one among the parties to that being under an error on a matter of fact . (Section 22)

# Agreements which have unlawful consideration and objects are void.(Section 23 & 24) :- The consideration or object of an agreement is unlawful if it's forbidden by law or of such a nature that if permitted , it might defeat the provisions of any law or is fraudulent or involves injury to the person or property of another or court regards it as immoral or against public policy .

If any a part of a single consideration for one or more objects , or anybody or any a part of anybody of several consideration for one object , is unlawful , the agreement is void. But where the legal a part of an agreement is severable from the illegal, the previous would be enforced.

# Agreements made without consideration is void.(Section 25) :- An agreement without the consideration is void unless :-

(i) it's made on account of natural love and affection and it's expressed in writing and registered under the law for the time being in effect.

(ii) it's a promise to compensate, an individual who has already voluntarily done something for the promisor.

(iii) it's a promise to pay a time barred debt.

# Agreement in restraint of marriage of any major person is void (Section 26) :- Every agreement in restraint of the wedding of a person , aside from a minor is void. It's the policy of the law to discourage agreements which restrains freedom of marriage . The restraint could also be general or partial , that's to mention , the party could also be restrained from marrying in the least , or from marrying for a fixed time or from marrying a specific person or class of persons , the agreement is void .

# Agreement in restraint of trade is void. (Section 27):- Every agreement by which anyone is restrained from exercising a lawful profession, or trade or business of any kind , is to it extent void. There are two sorts of exception to the rule , those created by Statutes:-

Ø Sale of Goodwill: - the sole exception mentioned within the proviso to section 27 is that regarding sale of goodwill. It states that “One who sells the goodwill of the business may accept as true with the customer to refrain from carrying on the same business, within specified local limits , so long because the buyer , or a person deriving the title to the goodwill from him , carries on a like business therein : as long as such limits appear to the court reasonable , regard being had to the nature of the business.

Ø Partnership Act :- There are four provisions within the Partnership Act which validate agreements in check of trade. Section 11 enables partners during the continuance of the firm to limit their mutual liberty by agreeing that none of them shall keep it up any business aside from that of the firm. Section 36 enables them to restrain an outgoing partner from carrying on the same business within a specified period or within specific local limits. The same agreement could also be made by partners upon or I anticipation of dissolution.

Exception to the rule as per Judicial Interpretation:-

Ø Exclusive Dealing Agreements: - Business practice in vogue is that a producer or manufacturer likes to promote his goods through a sole agent or distributor and therefore the latter agrees successively not to deal with the products of the other manufacturer. Within the case of Percept D. Mark (India) Pvt. Ltd. v Zaheer Khan, it had been observed by the Court that Negative Covenant during a contract that the covenantee wouldn't sell the same product of a competitor doesn't necessarily in check of trade , it could even be in furtherance of the trade.

Ø Restraints Upon Employee: - An agreement of service often contain negative covenants preventing the worker from working elsewhere during the period covered by the agreement . Trade Secrets , name of consumers etc. also are the property of master and servant isn't alleged to disclose it to anyone else . An agreement of this class doesn't falls within Section 27.

# Agreement in restraint of legal proceedings is void. (Section 28) :- An agreement purporting to oust the jurisdiction of the courts is illegal and void on grounds of public policy. Section 28 of the Act renders void two types of agreement , namely:

Ø An agreement by which a party is restricted absolutely from enforcing his legal rights arising under a contract by the standard legal proceedings within the ordinary tribunals.

Ø An agreement which limits the time within which the contract rights could also be enforced

However this is often also not an absolute rule and it's two exceptions to that which is as follows:-

Ø This section shall not render illegal a contract , by which two or more persons agree that any dispute which can arise between them in respect of any subject or class of subjects shall be mentioned arbitration , which only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.

Ø Nor shall this section render illegal any contract in writing, by which two or more persons comply with arbitration any question between them which has already arisen , or affect any provision of any law effective for the time being on references to arbitration.

But right to Appeal doesn't come within the purview of this section. a party to a suit may agree to not appeal against the choice .

# An agreement the terms of which are uncertain is void. (Section 29) :- Agreements , the meaning of which isn't certain , or capable of being made certain , are void. It's a necessary requirement that an agreement in order to be binding must be sufficiently definite to enable the court to offer it a practical meaning. An agreement to agree within the future is void, for there's no certainty whether the parties will b ready to agree.

Where only a part or a caluse of the contract is uncertain , but the rest is capable of bearing a fairly certain meaning , the contract are going to be considered bindin.Similarly , if the agreement is completely silent as to price , it'll be valid , for , therein case , Section 9 of the Sale of goods Act,1930 will apply and reasonable price shall be payable.

# An agreement by way of wager (betting/gambling) is void. (Section 30) :- Agreements by way of wager are void ; and no suit shall be brought for recovering anything alleged to be won on any wager or entrusted to a person to abide by the results of any game or other uncertain event on which any wager is created . The section doesn't define “Wager”. But wager are often said as a promise to offer money or money’s worth upon the determination or ascertainment of an uncertain event .

This rule has two exceptions to it, which is as follows:-

Ø Horse Race:- This section doesn't render void a subscription or contribution, or an agreement to subscribe or contribute , towards any plate , prize or sum of cash of the value or amount of 500 Rs. Or upwards to the winner or winners of any horse races .

Ø Crossword Competitions & Lottery: - If skill plays a considerable part within the result and prizes are awarded consistent with the merits of the answer, the competition isn't a lottery. Otherwise it’s. Thus, literary competitions which involve the applying of skill and within which an attempt is made to pick the best and most skillful competitor, aren't wagers.

# An agreement contingent upon the happening of an impossible event is void. (Section 36) :- A contingent contract may be a contract to do or not to do something , if some event , collateral to such contract , does or doesn't happen . Contingent agreements to try to to or to not do anything , if an impossible event happens , are void , whether the impossibility of the event is understood or to not the parties to the agreement at the time when it's made . For ex. A agrees to pay B 1000 Rs if two straight lines should enclose an area . The agreement is void.

Agreement to try to to impossible acts is void. (Section 56):- An agreement to do an act impossible in itself is void. A contract to do an act which, after the contract is formed, becomes impossible, or, by reason of some event which the promisor couldn't prevent, unlawful, becomes void when the act becomes impossible or unlawful.

4. Voidable Contract: - An agreement which is enforceable by law at the choice of the one or more of the parties thereto, but not at the choice of others or others, may be a voidable contract. Voidable Contract is valid unless one among the parties has set it aside. Voidable Contract generally happens when one side of the party is tricked into entering a contract by other party.

(i) Voidable Agreements as per provisions of Indian Contract Act,1872 :-

Ø Voidability of agreements without free consent: - when consent to an agreement is caused by coercion , fraud or misrepresentation the agreement is voidable at the choice of the party whose consent was so caused.

However , a party to a contract , whose consent was obtained by fraud or misrepresentation , may , if he thinks fit , insist that the contract shall be performed.

Ø Power to set aside contract induced by Undue Influence: - When consent to an agreement is caused by undue influence, the agreement may be a contract voidable at the choice of the party whose consent was so caused. A contract is claimed to be induced by undue influence where the relation subsisting between the contracting parties are such during all one amongst one in every of"> one among the parties is in a position to dominate the will of the opposite .

In such a case the burden of proving that such a contract wasn't induced by undue influence shall lie upon the one that is during a position to dominate the will of other .

Ø Liability of a party preventing event on which contract is to take effect :- When a contract contains reciprocal promises and one party to contract prevents the opposite from performing his promise, the contract becomes voidable at the choice of the party so prevented. Obvious principle is that an individual cannot take advantage of his own wrong. For ex. A and B contract that B shall execute certain work for A for a particular sum of cash. B is prepared and willing to execute the work accordingly, but A prevents him from doing so , The contract is voidable at the choice of B.

Ø Effect of failure to perform at fixed time , in a contract in which period is crucial :- When time is essence of contract and party fails to perform in time, it's voidable at the option of other party. An individual who himself delayed the contract cannot avoid the contract on account of (his own) delay.

(II) Consequences of rescission of Voidable Contract :- When an individual at whose option a contract is voidable rescinds it , the opposite party thereto needn't perform any promise therein contained within which he's promisor . The party rescinding a voidable contract shall , if he has received any benefit there under from another party to such contract , restore such benefit , thus far as could also be , to the person from whom it had been received.

(III) Mode of Communicating or revoking rescission of voidable contract :- The rescission of a voidable contract could also be communicated or revoked within the same manner , and subject to an equivalent rules , as apply to the communication or revocation of a proposal.

5. Void and illegal Agreement :- The Contract Act draws distinction between an agreement which is merely void and therefore the one which is unlawful or illegal . An illegal agreement is one which is forbidden by law ; but a void agreement might not be forbidden , the law may merely say that if it's made , the courts won't enforce it . Thus every illegal contract is void but a void contract isn't necessarily illegal.

The main difference between a void and illegal contract is that , a void contract isn't punishable and its collateral transactions aren't affected but on the contrary illegal contract is punishable and its collateral transactions also are void.

6. Difference between Void and Voidable Agreement :-

A void contract is considered to be a legal contract that's invalid, even from the beginning of signing the contract. On the opposite hand, a voidable contract is additionally a legal contract which is said invalid by one among the 2 parties, surely legal reasons.

While a void contract becomes invalid at the time of its creation, a voidable contract only becomes invalid if it's cancelled by one among the 2 parties who are engaged within the contract.

In the case of a void contract, no performance is feasible, whereas it's possible during a voidable contract. While a void contract isn't valid at face value, a voidable contract is valid, but is often declared invalid at any time.

While a void contract is nonexistent and can't be upheld by any law, a voidable contract is an existing contract, and is binding to a minimum of one party involved within the contract.

Discharge of a contract implies termination of contractual obligations. This is often because when the parties originally entered into the contract, the rights and duties in terms of contractual obligations were set up. Consequently when those rights and duties are put out then the contract is claimed to have been discharged. Once a contract stands discharged, parties thereto are no more liable even if the obligations under the contract remain incomplete.

A Contract is deemed to be discharged, that is, concluded and not binding, within the following circumstances:

Discharge by performance.

Discharge of Contract by Substituted Agreement.

Discharge by lapse of time.

Discharge by operation of law.

Discharge by Impossibility of Performance.

Discharge by Accord and Satisfaction.

Discharge by breach.

We shall examine each of them as follows.

Discharge by performance

Where both the parties have either carried out or tendered (attempted) to carry out their obligations under the contract, is mentioned as discharge of the contract by performance. Because performance by one party constitutes the occurrence of a constructive condition, the opposite party’s duty to perform is additionally triggered, and therefore the person who has performed has the right to receive the opposite party’ s performance. The overwhelming majority of contracts are discharged during this way.

Discharge of Contract by Substituted Agreement

A contract emanates from an agreement between the parties. It thus follows that, the contract must even be discharged by agreement. Therefore, what's required, inevitably, is mutuality. Discharge by substituted agreement arises when a contract is abandoned, or the terms within it are altered, and both the parties are in conformity over it.

For example, A and B enter into some agreement, and A wants to alter his mind and to not perform his terms of the contract. If he does this unilaterally then he are going to be in breach of contract to B. However, if he approaches B and states that he would really like to be released from his liabilities under the contract then the latter might agree. Therein case the contract is claimed to be discharged by (bilateral) agreement. In effect B has promised to not sue A if he doesn't perform his a part of the contract and therefore the consideration for his promise may be a ‘s promise to not sue B. Discharge by agreement may arise within the following ways.

Novation

The term novation implies the substitution of a brand new contract for the original one. This arrangement could also be either with an equivalent parties or with different parties. For a novation to be valid and effective, the consent of all the parties, including the new one(s), if any, is important . Moreover, the next or second agreement must be one capable of enforcement in law, the consideration for which is that the exchange of promises to not enforce the original contract.

Rescission

This refers to cancellation of all or few the material terms of the contract. If the contracting parties mutually plan to do so, the respective contractual obligations of the parties stand terminated.

Alteration

This refers to a change in one or more of the terms of a contract with the consent of all the contracting parties. Alteration leads to a new contract but parties thereto remain an equivalent . Here the belief is that both the parties are to realize a fresh but different enjoy the new agreement. Remission this suggests the acceptance (by the promisee) of a lesser sum than what was contracted for, or a lesser fulfillment of the promise made. As per Section 63, ‘every promisee may (a) remit or dispense with it, wholly or partially , or (b) extend the time of performance, or (c) accept the other satisfaction rather than performance’.

Waiver

The term waiver implies abandonment or relinquishment of a right. Where a celebration deliberately abandons its rights under the contract, the opposite party is released of its obligations, otherwise binding upon it.

Discharge by lapse of time

A contract stands discharged if not enforced within a specified period called the ‘period of limitation‘. The Limitation Act, 1963 prescribes the duration of limitation for various contracts. As an example , period of limitation for exercising right to recover an immovable property is twelve years, and right to recover a debt is three years. Contractual rights become time barred after the expiry of this limitation period. Accordingly, if a debt isn't recovered within three years of its payment becoming due, the debt ceases to be payable and is discharged by lapse of time.

Discharge by Impossibility of Performance

Sometimes after a contract has been established, something might occur, though not at the fault of either party, which may render the contract impossible to perform, or illegal, or radically different from that originally undertaken.

However, if whatever happens to stop the contract from being performe has not been caused by either party couldn't are foreseen, and its effect is to destroy the idea of the contract then the courts will, generality, state that the contract has become impossible to perform. If that happens then the contract is discharged and neither party will have any liability thereunder . Section 56 of the Indian Contract Act clearly provides that an agreement to try to to an act impossible in itself is void

The performance of a contractual obligation may become subsequently impossible on variety of grounds. They include the subsequent

Objective impossibility of performance

Commercial impracticability

Frustration of purpose

Temporary impossibility

Discharge of operation of law

A contract stands discharged by operation of law within the following circumstances.

Unauthorized material alteration of a written document

A party can treat a contract discharged (i.e., from his side) if the opposite party alters a term (such as quantity or price) of the contract without seeking the consent of the previous.

Statutes of Limitations

A contract stands discharged if not enforced within a specified period called the ‘period of limitation’. The Limitation Act, 1963 prescribes the duration of limitation for various contracts. As an example , limitation period for exercising right to recover an immovable property is twelve years and right to recover a debt is three years. Contractual rights become time barred after the expiry of this limitation period. Accordingly, if a debt isn't recovered within three years of its payment becoming due, the debt ceases to be payable and is discharged by lapse of time.

Insolvency

A discharge in bankruptcy will ordinarily bar enforcement of most of a debtor’s contracts.

Merger

A contract also stands discharged through a merger that happens when an inferior right accruing to party during a contract amalgamates into the superior right ensuing to the same party. As an example , A hires a factory premises from B for a few manufacturing activity for a year, but 3 months before the expiry of lease purchases that very premises. Now since A has become the owner of the building, his rights related to the lease (inferior rights) subsequently merge into the rights of ownership (superior rights). The previous rental contract ceases to exist.

Discharge by Accord and Satisfaction

To discharge a contract by accord and satisfaction; the parties must comply with accept performance that's different from the performance originally promised. It's going to be studied under the subsequent sub-heads.

Accord

An accord is an executor contract to perform an act which will satisfy an existing duty. An accord suspends, but doesn't discharge, the first contract.

Satisfaction

Satisfaction is that the performance of the accord, which discharges the first contractual obligation.

If the obligor refuses to perform

The obligee can sue on the first obligation or seek a decree for performance on the accord.

Discharge of contract by breach

Breach occurs where one party to a contract fails to perform its contractual obligations, or the performance is flawed . A breach of contract doesn't intrinsically bring a contract to an end. The breach may give to the aggrieved party the proper to terminate the contract but it's for the non-breaching side to make a decision whether or to not exercise that option. The aggrieved party features a right of election; that's to mention , it can choose either to affirm the contract or to terminate it. However, once that decision has been taken, it is, in principle, irrevocable.

A Breach may be anticipatory or actual.

Anticipatory Breach

Also referred to as ‘breach by repudiation’, anticipatory breach occurs when one party states, before the arrival of the date fixed for performance, without justification that it cannot or won't carry out the material part of the contractual obligations on the agreed date or that it intends to perform during a way that's inconsistent with the terms of the contract. This might also occur where one party by some action makes performance impossible. As an example , A, after agreeing to sell his car to B on a fixed date, sells it to C. This is often anticipatory breach.

Effect of anticipatory breach

Where there's an anticipatory breach, the non-breaching party may either rescind the contract, or Treat the accept force and await the time of performance. In first case, it can immediately sue for damages, i.e., it's not required to attend for the time for performance to expire.

For example, [D agreed to use P] as a courier for 3 months commencing on June 1. Before the said date D told P that his services wouldn't be required. This was to be an anticipatory breach of contract and it entitled P to sue D for damages immediately. If the non-breaching party elects to treat the contract operative, it waits until the time of performance then holds the opposite party responsible for the non-performance. Thus, by doing therefore the non-breaching party is giving an opportunity to the breaching party to still perform, if it can, so as to urge a valid discharge.

Actual Breach

Actual breach refers to the failure to perform contractual obligations when performance is due. Failure to perform obligations is the commonest kind of breach, wherein a seller fails to deliver the products by the appointed time, or where, although delivered, the goods aren't up to the mark in respect of quality or quantity laid out in the contract.

Effect of actual breach

Breach is described as a way of discharge although it should not automatically discharge the contract.Breach of contract results in two main remedies, namely breach of condition, and breach of warranty.

Breach of a condition this is often a serious term, referred to as material breach, which entitles the casualty to damages, and provides it an choice to treat the contract as subsisting or discharged.

Breach of a warranty this is often a term , called non-material breach, which entitles the non-breaching party to damages. It doesn't have the right to repudiate the contract, although a non-material breach can provides it the right to defer performance until the breach is formed good. However, once the breach is remedied, the non-breaching party must plow ahead and render its performance, minus any damages caused by the breach.

Thus, it's clear from the above that not every breach entitles the injured party to treat the contract as discharged. It must be shown that the breach has affected a significant part of the contract, which it's a breach of condition instead of breach of warranty.

Quasi Contract

The word ‘Quasi’ means pseudo. Hence, a quasi contract may be a pseudo-contract. Once we mention a valid contact we expect it to possess certain elements like offer and acceptance, consideration, the capacity to contract, and free will. But there are other sorts of contracts also .

There are cases where the law implies a promise and imposes obligations on one party while conferring rights to the opposite even when the fundamental elements of a contract aren't present. These promises aren't legal contracts, but the Court recognizes them as relations resembling a contract and enforces them sort of a contract.

These promises/ relations are Quasi contracts. These obligations also can arise because of different social relationships which we'll check out

The core principles behind a contract are justice, equity and good conscience. It's supported the maxim: “No man must grow rich out of another persons’ loss.”

Let’s check out an example of a Quasi contract: Peter and Oliver enter a contract under which Peter agrees to deliver a basket of fruits at Oliver’s residence and Oliver promises to pay Rs 1,500 after consuming all the fruits. However, Peter erroneously delivers a basket of fruits at John’s residence rather than Oliver’s. When John gets home he assumes that the fruit basket may be a birthday present and consumes them.

Although there's no contract between Peter and John, the Court treats this as a Quasi-contract and orders John to either return the basket of fruits or pay Peter.

Features of a quasi-contract

It is usually a right to money and is usually (not always) to a liquated sum of money

The right isn't an outcome of an agreement but is imposed by law.

The right isn't available against everyone within the world but only against a particular person(s). Hence it resembles a contractual right.

Sections 68 – 72 of the Indian Contract Act, 1872 detail five circumstances under which a Quasi contract comes to exist. Remember, there is no real contract between the parties and the law imposes the contractual liability due to the peculiar circumstances.

BAILMENT

INRTRODUCTION

According to Sec 148 of the Contract Act, 1872, ‘A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.

The person delivering the goods is called the bailor, the person to whom they are delivered is called the bailee and the transaction is called the bailment.

ESSENTIALS OF BAILMENT

It is a delivery of movable goods by one person to another (not being his servant). According to Section 149 the delivery of goods may be actual or constructive.

The goods are delivered for some purpose. When they are delivered without any purpose there is no bailment as defined under Sec 148

The goods are delivered subject to the condition that when the purpose is accomplished the goods are to be returned in specie or disposed of according to the directions of the bailor, either in original form or in altered form.

DUTIES OF THE BAILEE

• Duty to take reasonable care of goods delivered to him [Sec 151]
• Duty not to make unauthorized use of goods entrusted to him [ sec 154]
• Duty not to mix goods bailed with his own goods [ Sec 155]
• Duty to return the goods [ Sec 165]
• Duty to deliver any accretion to the goods [Sec 163]

DUTIES OF THE BAILOR

• Duty to disclose fault in the goods bailed [Sec 150]
• Duty to repay necessary expenses in case of gratuitous Bailment [Sec 158] eg bailment of horse and expenses incurred towards feeding and medical care of the horse to keep it alive.
• Duty to repay any extraordinary expenses in case of non-gratuitous expenses
• Duty to indemnify bailee [Sec 164]

RIGHTS OF BAILEE

• Enforcement of Bailor’s Duties
• Right to deliver goods to one of several joint owners
• Right to deliver goods, in good faith, to bailor without title, without incurring any liability to the true owner
• Right of Lien

RIGHTS OF THE BAILOR

• Enforcement of Bailee’s Duties
• Right to terminate bailment if the bailee uses the goods wrongfully [ Sec 153]
• Right to demand return of the goods at any time in case of gratuitous bailment [Sec 159]

PLEDGE OR PAWN

INTRODUCTION

According to Sec 172, Contract Act, 1872, ‘The bailment of goods for repayment of a debt or performance of a promise is called ‘pledge’. The Bailor in this case is called the pawnor, the bailee is called the Pawnee.

DIFFERENCE

ESSENTIAL FEATURES OF A VALID PLEDGE

• Delivery of possession
• Delivery should be upon a contract
• Delivery should be for the purpose of security
• Delivery should be upon condition to return

DUTIES OF A PAWNOR

• Duty to repay the loan
• Duty to pay expenses in case of default

DUTIES OF A PAWNEE

• Duty not use of pledged goods
• Duty to return the goods

RIGHT OF PAWNOR

• Right to redeem the goods pledged
• Right to receive the increase

RIGHT OF PAWNEE

• Right to retain the pledged goods
• Right to extra ordinary expenses
• Right in case of default of the pawnor
• Right to sell the goods

LAW OF AGENCY

MEANING & DEFINITION OF AGENCY

Section 182,

“An agent is a person employed to do any act for another or to represent another in dealing with third persons. The person for whom such act is done or who is so represented is called the principal”.

• The person who delegates the authority is known as principal.
• To whom the power is delegated is known as agent.
• The relationship that is created is known as agency.
• A person who act in place of another – Agent
• The person on whose behalf he acts - Principal

FEATURES OF THE CONTRACT OF AGENCY

• Principal is answerable to third parties for the acts of agent
• Consideration not necessary – Section 185 of the act clearly lays down , “ No consideration is necessary to create an agency”
• Principal must be competent to employ an agent – Only a person who is competent to contract can employ an agent. (Major, Sound Mind )
• Agent may not have contractual capacity – A minor or a person of unsound mind may act as an agent & bind the principal to the third persons.

TEST OF AGENCY

A person does not become an agent on behalf of another merely because he gives him advice in matters of business.

Every person who acts for another cannot be agent. Cobbler mending shoes of a man, servant rendering services for us – are not agents.

To test whether a person is or not an agent

• The essential condition is that whether he is clothed with a necessary authority by another (principal) to bind him & make him (principal) answerable to the third persons & thus establishing a privity contract between that third person & the principal.
• If this condition is satisfied then a person is considered as an agent.

1.2           Sale of Goods Act 1930—Meaning, definition, conditions and warranties.

HISTORY

• Sale of goods act was enacted in 1930.
• Borrowed from the English Sales of Goods Act,1893.
• Came into force in July 01, 1930.
• Prior to the act, the law of sale of goods was contained in chapter VII of the Indian contract act,1872.
• It extends to whole India except J& K.

FORMATION OF CONTRACT OF SALE

DEFINITION:

As per Sec 4(1) of the Indian Sale of Goods Act, 1930 defines the contract of sale of goods in the following manner: “ A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price”.

ESSENTIALS OF CONTRACT OF SALE

From the above definition, the following essentials of a contract of sale may by noted:

• There must be at least two parties
• Transfer or Agreement to transfer the ownership of goods.
• The subject matter of the contract must necessarily be 'goods'. Sale of immovable property is not covered under this act.
• The consideration is Price.
• A Contract of sale may be in writing or by words
• All other essentials of a valid contract must be present

GOODS

Definition of GOODS under the Act

• 'Goods' means every kind of moveable property and includes stock and shares, growing crops, grass, and things attached to or forming part of the land, which are agreed to be severed before sale or under the contract of sale.
• Actionable claims and money are not included in the definition of goods.
• Thus, goods include every kind of moveable property other than actionable claim or money. Example - goodwill, copyright, trademark, patents, water, gas, and electricity are all goods and may be the subject matter of a contract of sale.
• The test is if the property on shifting its situation, does not lose its character, the said property shall be movable and fall within the definition of Goods.

TYPES OF GOODS

• Existing goods
• Future goods
• Contingent goods

1. Existing goods:

Goods which are physically in existence and which are in seller's ownership and/or possession, at the time of entering the contract of sale are called 'existing goods.' Where seller is the owner, he has the general property in them.

2. Future goods:

Goods to be manufactured, produced or acquired by the seller after the making of the contract of sale are called 'future goods' [Sec. 2(6)]. These goods may be either not yet in existence or be in existence but not yet acquired by the seller. Ex:- A agrees to sell to B all the milk that his cow may yield during the coming year. This is a contract for the sale of future goods.

3. Contingent goods:

Though a type of future goods, these are the goods the acquisition of which by the seller depends upon a contingency, which may or may not happen [Sec. 6 (2)].

Ex:- (a) A agrees to sell to B a specific rare painting provided he is able to purchase it from its present owner. This is a contract for the sale of contingent goods. (b) X agrees to sell to 25 bales of Egyptian cotton, provided the ship which is bringing them reaches the port safely. It is a contract for the sale of contingent goods. If the ship in sunk, the contract becomes void and the seller is not liable.

The term “Contract of sale of goods’ is a generic term and it includes:

a. Sale

b. An agreement to sell

Where the seller transfers the ownership rights to the buyer immediately on making the contract, it is the contract of sale, but where the ownership rights are to pass on some future date upon the fulfillment of certain conditions then it is called an agreement to sell.

1.3           Transfer of ownership in goods, sale by non-owners, unpaid seller.

PASSING / TRANSFER OF PROPERTY

• Transfer of property in goods from the seller to the buyer is the main object of a contract of sale.
• “property in goods” means the ownership of goods
• An article may belong to A although it may not be in his possession. B may be in possession of that article although he is not its owner.
• It is important to know the precise moment of time at which the property in goods passes from the seller to the buyer for the following reasons
• Significance – Time of transfer of ownership of goods decides various rights and liabilities of the seller and buyer.
• Risk – Owner to bear the risk and not the person who merely has the possession
• Action against third party – Owner can take action and not the person who merely has possession.

RIGHTS OF UNPAID SELLER

UNPAID SELLER (SEC.45)

A seller of goods is deemed to be an unpaid seller when:-

• The whole of the price has not been paid or tendered;
• A bill of exchange or other negotiable instrument has been received as a conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise.

CONDITIONS:

• The term "seller" includes any person who is in the position of a seller, as, for instance, an agent of the seller to whom the bill of lading has been endorsed or agent who has himself paid, or is directly responsible for, the price.
• The seller shall be called an unpaid seller even when only a small portion of the price remains to be unpaid.
• It is for the non payment of the price and not for other expenses that a seller is termed as an unpaid seller.
• Where the full price has been tendered by the buyer and the seller refused to accept it, the seller cannot be called as unpaid seller.
• Where the goods have been sold on credit, the seller cannot be called as an unpaid seller. Unless
• If during the credit period seller becomes insolvent, or
• On the expiry of the credit period, if the price remains unpaid, Then, only the seller will become an unpaid seller.

RIGHTS OF AN UNPAID SELLER

• Against goods : Where the property in goods has passed to the buyer: Right of lien , right of stoppage in transit, right of resale

• Against buyer personally : Where the property in goods has not passed to the buyer: Withholding delivery, Stoppage in transit, Resale

Right of lien (sec.47-49)

• The right of lien means the right to retain the possession of the goods until the full price is received.
• Circumstances under the right of lien can be exercised
• Where the goods have been sold without any stipulation to credit 
• Where the goods have been sold on credit, but the term of credit has expired
• Where the buyer becomes insolvent

Right of stoppage of goods in transit (sec.50-52)

• Right of stoppage in transit means the right of stopping the goods while they are in transit, to regain possession and to retain them till the full price is paid.
• Conditions under which Right of stoppage in transit can be exercised

(i) Seller must have parted with the possession of goods,ie, the goods must not be in the possession of the seller

(ii) the goods must be in course of transit

(iii) buyer must have become insolvent

Right of resale (sec.54)

An unpaid seller can resell the goods under the following circumstances:

Where the goods are of a perishable nature

1. Where the seller expressly reserves the right of resale if the buyer commits a default in making payment
2. Where the unpaid seller who has exercised his right of lien or stoppage in transit gives a notice to the buyer about his intention to resell and buyer does not pay or tender within a reasonable time.