Unit 1
NATURE OF CONTRACT
Objectives of the law of contract
The law of contract is that branch of law which determines the circumstances in which promises made by the parties to a contract shall be legally binding on them. Its rules define the remedies that are available in a court of law against a person who fails to perform his contract, and the conditions under which the remedies are available. It is the most important branch of business law. It affects all of us in one way or the other. It is however of particular importance to people engaged in trade, commerce and industry as bulk of their business transactions are based on contracts.
The law of contract introduces definiteness in business transactions. Sir William Anson observes in this connection that the law of contract is intended to ensure that what a man has been led to expect shall come to pass and that what has been promised to him shall be performed. In simple words it may be said that the purpose of the law of contract is to ensure the realization of reasonable expectation of the parties who enter into a contract.
The Indian contract Act 1872
The law relating to contracts is contained in Indian contract Act 1872, the Act deals with (1) the general principles of the law of contract and (2) some special contracts only (sec 124 to 238), the first six chapters of the act deal with the different stages in the formation of a contract, it’s essential elements, its performance or breach and the remedies for breach of contract. The remaining chapters deal with some of the special contracts, indemnity and guarantee, bailment and pledge and agency.
The act does not affect any usage or custom of trade the reference to sections in chapters 1 to 12 are to the Indian contract Act 1872, unless otherwise stated.
The Act is not exhaustive
The Indian contract act does not profess to be a complete and exhaustive code. It deals with the general principles of the law of contract and with some special contracts only. Some of the contracts not dealt with by the act are those relating to partnership, sale of goods, negotiable instruments, insurance bill of lading etc. there are separate acts which deal with these contracts.
Nature of the law of contract
which the law will uphold. The parties to a contract, in a sense, make the law for themselves. So long as they do not infringe some legal prohibition they can make what rules they like in respect of the subject-matter of their agreement, and the law will give effect to their decisions.
Law of contract is not the whole law of agreements nor the whole law of obligations
There are several agreements which do not give rise to legal obligations, there are therefore not contracts. Similarly there are certain obligations which do not necessarily spring from an agreement, e.g.. (1) Torts or civil wrongs, (ii) quasi-contract, (iii) judgments of courts. These obligations which are not contractual in nature. But even then they are enforceable.
Salmond has rightly observed that the law of contract is “not the whole law of agreements, nor is it the whole law of obligations, and those obligations which have their sources in agreements.” It excludes from its purview all obligations which are not contractual in nature and agreements which are social in nature.
Law of contract creates jus in personam as distinguished from jus in rem
Jus in rem means a right against or in a respect of a thing; jus in personam means a right against or in a respect of person. A jus in rem is available against the world at large; a jus in personam is available only against particular persons.
Examples. (a) A owes a certain sum of money to B. B has a right to recover this amount from A. this right can be exercised only by B and by none else against A. this right of B is a jus in personam.
(b) X is the owner of a plot of land. He has a right to have quite possession and enjoyment of that land against every member of the public. Similarly every member of the public is under an obligation not to disturb X’s possession or enjoyment. This right of X is a jus in rem.
DEFINITION OF CONTRACT
A contract is an agreement made between two or more parties which the law will enforce. Sec 2 (h) defines a contract as an agreement enforceable by law. This definition is based on Pollock’s definition which is as follows: “Every agreement and promise enforceable at law is a contract.”
According to salmond a contract is “an agreement creating and defining obligations between the parties.”
Agreement and its enforceability.
If we analyze the definitions of contract w find that a contract essentially consists of two elements
(1) Agreement and (2) its enforceability by law.
An agreement is defined as “every promise and every set of promises, forming consideration for each other.” A promise is defined thus: “when the person to whom the proposal is made signifies his assent there to, the proposal is said to be accepted. A proposal when accepted becomes a promise” this in other words means that an agreement there must be a proposal or offer by one party and its acceptance by the other party. To sum up:
Agreement = Offer + Acceptance.
Consensus ad idem
The essence of an agreement is the meeting of the minds of the parties in full and final agreement; there must in fact be consensus ad idem. The expression “agreement” as defined in sec.2(e) is essentially and exclusively consensual in nature, i.e, before there can be an agreement between two parties there must be consensus ad idem. This means that the parties to the agreement in the same sense and at the same time. Unless there is consensus ad idem, there can be no contract.
Example, A who owns two horses named rajhans and hansraj, is selling horse rajhans to B. B thinks that he is purchasing horse hansraj. There is no consensus ad idem and consequently no contract.
In order to determine wheather in any given agreement there is existence of consensus ad idem, it is usual to employ the language of offer and acceptance. Thus if A says to B, “will you purchase my blue car for rs. 10,000?” and B says “yes” to it there is consensus ad idem and an agreement comes into existence.
Obligation
Ex; A agrees to sell his car to B for Rs. 10,000. The agreement gives to an obligation on the part of A to deliver the car to B and on the part of B to pay Rs. 10,000 to A. this agreement is a contract.
(b) A promises to sell his car to B for Rs. 10,000 received by him as the price of the car. The agreement gives rise to an obligation on the part of A to deliver the car to B. this agreement is also a contract.
Agreement is a very wide term
An agreement may be a social agreement or a legal agreement. If A invites B to a dinner and B accepts the invitation, it is a social agreement. A social agreement does not give rise to contractual obligations and is not enforceable in a court of law. It is only those agreements which are enforceable in a court of law which are contracts.
Ex; A invites his friend B to come and stay with him for a week. B accepts the invitation but when he comes to A, A cannot accommodate him as his wife had died the day before. B cannot claim any compensation from A as the agreement is a social one.
(b) A father promises to pay his son Rs. 100 every month as pocket allowance. Later he refuses to pay. The son cannot recover as it is a domestic agreement and there is no intention on the part of the parties to create legal relations.
To conclude: contract = Agreement + Enforceability at law.
Thus all contracts are agreements but all agreements are not necessarily contracts.
ESSENTIAL ELEMENTS OF A VALID CONTRACT
According to sec. 10 all agreements re contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void. In order to become a contract, an agreement must have the following essential elements:
1. Offer and acceptance. There must be two parties to an agreement, i.e., one party making the offer and other and other and other party accepting it. The terms of the offer must be definite and the acceptance of the offer must be absolute and unconditional. The acceptance must also be according to the mode prescribed and must be communicated to the offeror.
Ex: A husband promised to pay his wife a household allowance of Rs 30 every month. Later the parties separated and the husband failed to pay the amount. The wife sued for the allowance. Held agreements such as these were outside the realm of contract altogether.
In commercial and business agreements the presumption is usually that the parties intended to create legal relations. But this presumption is rebuttable which means that it must be shown that the parties did not intend to be legally bound.
Ex: (a) there was an agreement between R Company and C Company by means of which the former was appointed as the agent of the latter. One clause in the agreement was: “this agreement is not entered into …as a formal or legal agreement, and shall not be subject to legal jurisdiction in the law courts.” Held there was no binding contract as there was no intention to create legal relationship.
(b) in an agreement a document contained a condition “that it shall not be attended by or give rise to any legal relationship rights, duties, consequences whatsoever or be legally enforceable or be the subject of litigation, but all such arrangements, agreements and transactions are binding in honour only.” Held the condition was valid and the agreement was not binding.
3. Lawful consideration. An agreement to be enforceable by law must be supported by consideration. Consideration means an advantage or benefit moving from one party to another. It is the essence of a bargain. In simple words, it means ‘something in return’. The agreement is legally enforceable only when both the parties give something and get something in return. A promise to do something getting nothing in return in usually not enforceable by law. Consideration need not necessarily be in cash or king. It may be an act or abstinence or promise to do or not to do something. It may be past, present or future. But it must be real and lawful.
4. Capacity of parties-competency. The parties to the agreement must be capable of entering into a valid contract. Every person is competent to contract if he (a) is of age of majority, (b) is of sound mind, and (c) is not disqualified from contracting by any law to which he is subject. Flaw in capacity to contract may arise from minority, lunacy, idiocy, drunkenness, etc., and status. If a party suffers from any flaw in capacity, the agreement is not enforceable except in some special cases.
6. Lawful object. The object of the agreement must be lawful in other words it means that the object must not be (a) illegal (b) immoral or (c) opposed to public policy. If an agreement suffers from any legal flaw, it would not be enforceable by law.
7. Agreement not declared void. The agreement must not have been expressly declared void by law in force in the country.
8. Certainty and possibility of performance. The agreement must be certain and not vague or indefinite. If it is vague and it is not possible to ascertain its meaning it cannot be enforced.
Ex: (a) a agrees to sell to B “a hundred tons of oil”. There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty.
(b) O agreed to purchase a motor van from S “on hire-purchase terms”. The hire purchase price was to be paid over two years. Held there was no contract as the terms was not certain about rate of interest and mode of payment. No precise meaning could be attributed to the words “on hire-purchase” since there was a wide variety of hire-purchase terms.
(c) A company agreed with V that on the expiration of V’s existing contract, it would favorably consider an application by V for a renewal of his contract. Held the agreement was not intended to bind the company to renew its contract with V and imposed no obligation on it to review it.
UNLAWFUL AND ILLEGAL AGREEMENTS
An unlawful agreement is one which, like a void agreement, is not enforceable y law. It affects only the immediate parties and has no further consequences.
An illegal agreement on the other hand, is not only void as between immediate parties but has this further effect that the collateral transactions to it also become tainted with illegality.
Example: A lends 5000/- to B to help him to purchase some prohibited goods from T, an alien enemy. If B enters into an agreement with T, the agreement will be illegal and the agreement between B & L also becomes illegal, being collateral to the main transaction which is illegal. +
Every illegal agreement is unlawful, but every unlawful agreement is not necessarily illegal.
EFFECTS OF ILLEGALITY:
I. the collateral transactions to an illegal agreement become tainted with illegality and are treated as illegal even though they would have been lawful by themselves.
II. no action can be taken a) for the recovery of money paid or property transferred under an illegal agreement, and b) for the breach of an illegal agreement.
III. in cases of equal guilt in an illegal agreement, the position of the defendant is better than that of the plantiff. The plantiff may however sue to recover money paid or property transferred:
a) where he is not in part delicto with the defendant, eg. where he was induced to enter into an agreement by fraud, undue influence. b) where he does not have to rely on the illegal transaction.
c) where a substantial part of the illegal transaction has not been carried out, and he is truly a genuinely repentant.
Where illegality is severable: A contract may contain several distinct promises or a promise to do several distinct acts of which some are legal and the others illegal, or part of which is legal and a part of which is illegal. If the illegal promise is severable from the legal one, the court will enforce a legal promise and reject the one which is illegal.
Reciprocal promises: Where persons reciprocally promise, firstly, to do certain things which are legal, and secondly, under specified circumstances, to do certain other things which are illegal, the first set of promises is a contract, but the second is a void agreement.
example: A& B agree that A shall sell B a house for 10000/- but that if B uses it as gambling house, he shall pay A 50,000/- for it. The first set of reciprocal promises, namely to sell the house and pay 10,000/- is a contract. The second set is for an unlawful object.
Alternative promise: one branch being illegal. In the case of an alternative promise, one branch of which is legal and the other illegal, the legal branch alone can be enforced.
Contingent contracts A contract may be—
1. An absolute contract, or 2. A contingent contract
An ‘absolute contract’ is one in which the promisor binds himself to performance in any event without any conditions.
‘Contingent’ means that which is dependent on something else.
A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen (sec. 31). Where, for example, goods are sent on approval, the contract is a contingent contract depending on the act of the buyer to accept or reject the goods.
Example: A contracts to pay Rs.10000 if B’s house is burnt, this is a contingent contract.
There are three essential characteristics of a contingent contract:
1. Its performance depends upon the happening or non-happening in future of some event. It is this dependence on a future event which distinguishes a contingent contract from other contracts.
2. The event must be uncertain, if the event is bound to happen, and the contract has got to be performed in any case it is not a contingent contract.
3. The event must be collateral i.e., incidental to the contract.
Example: there was a contract for the sale of American parachute cloth by A to B. the goods were to be delivered when they arrived. A failed to give delivery and B sued for damages for breach. A pleaded that the contract was a conditional one and as the goods had not arrived he had no obligation to give delivery. Held, the contract was an absolute one and the obligation of A was not contingent upon the arrival of the goods
Contracts of insurance, indemnity and guarantee are the commonest instances of a contingent contract.
in an agreement between A and B to pay what C shall determine, and a promise to pay under a policy of insurance subject to the approval of directors, are valid promises. RULES REGARDING CONTINGENT CONTRACTS
1. Contingent contracts dependent on the happening of an uncertain future event cannot be enforced until the event has happened. If the event becomes impossible, such contracts become void (sec. 32)
Example: A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse has been offered, refuses to buy it. The contract cannot be enforced by law unless and until C refuses to buy the horse.
2. Where a contingent contract is to be performed if a particular event does not happen, its performance can be enforced when the happening of that event becomes impossible (sec. 33).
Examples: (a) A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.
(b). A agrees to sell his car to B if C dies. The contract cannot be enforced so long as C is alive.
In both the above examples, there is a condition subsequent on the happening of which would arise the liability of the promisor, i.e., A.
The fact that by supervening circumstances performance of a promise is rendered more difficult an expensive will not ordinarily excuse the promisor.
3. If a contract is contingent upon how a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies(sec. 34).
Example: A agrees to pay B a sum of money if B marries C. C marries D. the marriage of B to C must now be considered impossible , although it is possible that D may die and that C may afterwards marry B.
4. Contingent contracts to do or not to do anything, if a specified uncertain event happens within a fixed time, become void if the went does not happen or its happening becomes impossible before the expiry of that time.
Contingent contracts to do or not to do anything, if a specified uncertain event does not happen within a fixed time, may be enforced if the event does not happen or its happening become impossible before the expiry of that time (sec. 35).
Examples: (a) A promises to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt within the year.
5. Contingent agreements to do or not do anything, if an impossible event happens, are void, whether or not the fact is known to the parties (sec. 36).
Examples: (a) A agrees to pay B Rs. 1,000 if two straight lines should enclose a space. The agreement is void.
(b) A agrees to pay B Rs. 1,000 if B will marry A’s daughter, C. C was dead at the time of the agreement. The agreement is void.
Difference between a wagering agreement and a contingent contract
1. A wagering agreement consists of reciprocal promises whereas a contingent contract may not contain reciprocal promises.
2. A wagering agreement is essentially of a contingent nature whereas contingent contract is may not be of a wagering nature.
3. A wagering agreement is void whereas a contingent contract is valid.
4. In a wagering agreement, the parties have no other interest in the subject-matter of the agreement except the winning or losing of the amount of the wager. In other words, a wagering agreement is a game of chance. This is not so in case of a contingent contract. 5. In a wagering agreement the future event is the sole determining factor while in a
contingent contract the future event is only collateral.
PERFORMANCE OF CONTRACTS
Performance of contract implies fulfillment of the terms of the contract by the respective parties to the contract.Section 37 of the contract Act lays down that,”that parties to a contract must either perform,or offer to perform their respective promises,unless such performance is dispensed with or excused under the provisions of this Act,or of any other law’.This meanz that the performance may be of two types as shown below:
PERFORMANCE∙∙
1) Actual performance 2) Attempted performance
A party to a contract is said to have actually performed his promise when he has done wht he had undertaken to do. In other words, he must have fulfilled all his obligation under the contract.
ATTEMPTED PERFORMANCE OR OFFER TO PERFORM
An offer to perform one’s obligations under a contract is calle TENDER. It is also called attempted performance because though the promisor has offered to fulfil his obligation under the contract,the performance is not complete unless the offer to performance is accepted by the promise.The nature of the contract determines whether it requires ACTUAL OR ATTEMPTED PERFORMANCE.
EXAMPLE:
(i) A contract ito find out the lost child of B for sum of Rs.100.Here the nature of the contract is sucha that A should actually perform his part.
(ii) A agrees to sell certain goods to B on a fixed date.It is a greed that B will send his manager for taking delivery of goods on that date.The nature of the contract requires that A should first make an offer of performance to B on the fixed date.
It is to be noted that in case the promise refuses to accept a valid offer of performance of the contract by the promisor,the latter shall be discharged from the responsibility for the non-performance of the contract without in any way prejudicing his own rights againt the promise,A valid tender of performance when rejected by the other party,shall be treated equivalent to the actual performance of the contract and the person,making this valid tender of performance can bring a suit for the breach of contract against the other party.This has been made very clear in section 38 of the Act
“Where a promisor has made an offer of performance to the promise and the offer has not been accepted.the promisor is not responsible for non-performance ,not does he thereby lose right under the contract’.However,in case of payment of debt,the rejection of a valid tender of money by the creditor will not discharge the promisor from the liability for the repayment of the debt.He shall continue to be liable for the repayment of the debt without being liable for any interest on the same from the date of valid tender.He shall also be entitled to recover his costs,if any,which he might have incurred in making that valid tender of the payment of the debt.
Kinds of Tender
discharged from the liability for the debt even if his tender of money to repay loan is not accepted by the creditor. Tender of money cannot amount to discharge of the debt. Interest on the debt shall immediately cease to accrue from the date of the rejection of a valid tender of money.
ESSENTIALS OF A VALID TENDER:
The essential requisites of a valid tender may be summarised as follows:
1) IT SHOULD BE UNCONDITIONAL:A tender with conditions attached to it will not be a valid tender.But a mere demand for the receipt for the amount offered to be paid alone,will not make the tender conditional.
EXAMPLE: A.a debtor,offers to pay his creditor P,the amount due to him if P sells his car at cost to him.The tender cannot be termed as a valid tender.
2) IT SHOULD BE AN OFFER TO PERFORM IN FULL:An offer to perform promise in part cannot be taken as a valid tender.
EXAMPLE: A has to deliver 100 bags of wheat of B on 1st of December. He offers only 50
bags to B on the due date.It is not a valid tender and B can refuse to accept delivery of the same.
3) TENDER FOR THE PERFORMANCE OF THE CONTRACT MUST BE MADE AT THE FIXED TIME AND PLACE OR AT A PROPER TIME AND PLACE: unless otherwise agreed upon, the place of business of the promise shall be the proper place to make tender of the performance of the contract.
4) TENDER SHOULD BE MADE TO THE PROPER PROMISEE: Tenders made to a stranger would be invalid. Tender made to any one of the joint promise shall be valid and binding upon all of them.
5) TENDER SHOULD BE MADE TO THE PROPER PROMISEE:Tender made to a stranger would be invalid.Tender made to any one of the joint promises shall be valid and binding upon all of them.
7) REASONABLE OPPORTUNITY must be provided to the promise to inspect and satisfy himself that the performance is in accordance with the terms of the contract and that the goods offered are the same which the promsor is bound by his promise to deliver.
Example; a contract to deliver to B at his warehouse on the 1st March 2000,100 bales of cotton of
a particular quality.In order to make a valid tender of performance,A must bring cotton to B’s warehouse on the appointed day,under such circumstances that B may have a reasonable opportunity of satisfying himself that the thing offered is cotton of the quality contracted for,and that there are 100 bales.
8) .IN CASE OF PAYMENT OF MONEY,TENDER MUST BE OF THE PRECISE AMOUNT AND IN TERMS OF LEGAL TENDER MONEY: Promisee cannot be compelled to accept Cheques in dishcharge of his debts.
Thus,tender of money by cheque,tender before due date,tender of performance in instalments unless otherwise agreed upon,tender after business hours or at such odd hours which may not permit inspection of goods by the other party,tender of goods in quantity other than agreed,are all examples of invalid tenders of performance.
9) IN CASE OF SEVERL PROMISEES A VALID TENDER OF PERFORMANCE MADE TO ONE SHALL BE TAKEN AS A VALID TENDER MADE TO ALL:This is true only regarding tender of performance and nothing else.A payment by a debtor to one of several joint creditors cannot have the legal effect of discharging the entire contractual obligations as againt the other co-creditors.This is because of sec-45(discussed later) which states that the right to demand performance rests with the joint promiseees jointly and not severally.
EFFECT OF THE REFUSAL OF A PARTY TO PERFORM THE PROMISE WHOLLY(SEC-39)
when a party to a contract has refused to perform or disabled himself from performing his promise in its entirety,the promise may put an end to the contract,unless he has signified by his words or conduct,his acquiescence in its continuance.
(ii) A,a singer,enters into a contract with B,the managers of a theatre,to sing at his theatre two nights in every week during the next two months and B agrees to pay her at the rate of 100 rupees for each night.On the sixth night A willfully absents herself.With the assent of B,A sings on the seventh night.B has signified his acquiescene to the continuance of the contract,and cannot now put an end to it,but is entitled to compensation for damages sustained by him through A’s failure to sing on the sixth night.
RESPONSIBILITY FOR PERFORMANCE
The responsibility of performance of contract lies on the following persons;
1).THE PROMISOR(sec 40):If it appears from the nature of the case that it was the intention of the parties to any contract,that any promise contained in it should be performed by the promisor himself,such promise must be performed by the promisor.Contracts involving personal skill or those depending upon personal trust and confidence must be performed by the promisor himself
Example: A promise to paint picture for B.A must perform this promise personally
2) THE AGENT(sec.40):Contracts which are not of a personal nature,may be performed by an agent or a deputy appointed by the promisor for this purpose.
Example:A promises to pay B a sum of money.A may perform the promise,either by personally paying the money to B or by causing it to be paid to B by another.If A dies before the time appointed for payment,his representative must perform the promise or employ some proper person to do so.
3)THE LEGAL REPRESENTATIVE: Promisee bind the representatives of the promisors in case of the death of such promisor before performance,unless a contrary intention appears from the contract.On the death of the promisor,the promise can compel his legal representatives to perform the promise unless it involves the personal skill of the promisor.However the liability of the legal representatives will not be personal,but shall be limited only to the extent of the value of the estate of the deceased promisor inherited by him.
(ii) A promises to paint a picture for B by a certain day,at a certain price.A dies before that day.The contract cannot be enforced by A’s representatives or by B.
4) PERFORMANCE OF A PROMISE BY A THIRD PERSON(sec.41):When a promise accepts performance of the promise from a third person,he cannot afterwards enforce it againt the promisor.
5)PERFORMANCE OF JOINT PROMISES(sec,42 to 44) :The rules regarding performance of a promise made by joint promisor are as follows:
(a) When a two or more persons have made a joint promise,then ordinarily all of them,during their life-time must jointly fulfil the promise;and after death of any of them,his legal representatives jointly with the survivor or survivors and after death of the last survivor,the legal representatives of all the original co-promisors must fulfil the promise. (b) In the absence of any contract to the contrary,promisee is free to compel any one or more
of the joint promisorss to perform the whole of the promise.Thus,a joint promisor cannot clain the right of being sued upon along with this co-promisors
Example:A,B and C jointly promise to pay D Rs.3,000:D may compel either A or B to C to pay him Rs.3,000
Thus,under Indian Law the liability of joint promisors is joint as well as several.
(c) In all those cases where the debt devoles upon a number of heirs on the death of the individual original debtors,promise must bring his suit againt all the heirs collectively.He cannot compel any one or more of such co-heirs to pay the entire amount because they have only joint liability and not joint and several liability.Severally none of them would be liable for an amount more than his share.
(d) A joint promisor,on being compelled to perform the whole contract,can call for equal contribution from others,unless otherwise agreed upon between them.
Example:A,B and C jointly promise to pay D the sum or Rs. 3,000 C is compelled to pay the whole,C is entitled to receive Rs.1,000 each from A and B.
as joint promisor.Surety shall be entitled to recover from the principal debtor the entire amount paid by him on behalf of the principal debtor(sec.43)
Example:(i) A,B and C are under a joint promise to pay D Rs.3,000.C is unable to pay anything and A is compelled to pay the whole.A is entitled to receive Rs.1,500 from B.
(ii) A,B and C are under a joint promise to pay D Rs.3,000.A,and B being only sureties for C.C fails to pay A and B are compelled to pay the whole sum.They are entitled to recover it from C.
(f) Release of one of the joint promisors by the promise will not discharge the other joint promisors.They shall continue to be liable to make contribution to the other joint promisors.
DEMAND FOR PERFORMANCE Performance can be demanded by the following persons:
1) PROMISEE: The performance can be demanded only by the promisee.A third party cannot demand performance of the contract even if it was made for his benefit.
Example:A agrees with B that as desired by him(B),he(A) will sell his motor car to C.In case A refuses to sell his motor car to C.only B can bring action againt him.
2) LEGAL REPRESENTATIVE:In case the death of the promises has taken place,the legal representatives of the promise can demand performance,unless the contract happens to be of a personal nature
Example:A agrees to marry B.After some time B dies.The legal representatives of B cannot demand performance of the promise from A.
3) JOINT PROMISEE: When a person has made a promise to two or more persons jointly,then unless a contrary intention appears from the contract the right to claim performance rest.
(a) with all the joint promises jointly:
(b) In case of death of any of the joint promises,with the representatives of such deceased person jointly with the survivor or survivors:
(c) In case of death of all joint promises with the representatives of all jointly.
rests with B’s representatives jointly with C during C’s life,and after the death of C with the representatives of B and C jointly.
It has been held by the majority of High Courts in the country in the country that this section does not apply to partnership firm.Surviving partner or partners of a firm can bring suit in their own name to recover a debt to the partnership without joining the representatives of the deceased partner.
Discharge Of Contract
Discharge of contract means termination of the contractual relationship between the parties. A contract is said to be discharged when it ceases to operate, i.e, when the rights and obligations created by it come to an end. In some cases, other rights and obligations may arise as a result of discharge of contract, but they are altogether independent of the original contract.
A contract may be discharged:
1. By performance.
2. By agreement or consent.
3. By impossibility.
4. By lapse of time.
5. By operation of law.
6. By breach of contract.
The various modes of discharge of contract can be shown on the chart below.
1. DISCHARGE BY PERFORMANCE
in the manner prescribed. In such a case, the parties are discharged and the contract comes to an end. But if only one party performs the promise, he alone is discharged. Such a party gets a right of action against the other party who is guilty of breach.
Performance of a contract is the most usual mode of discharge. It may be
(1) Actual Performance – When both the parties perform their promises, the contract is discharged. Performance should be complete, precise and according to the terms of agreement. Most of the contracts are discharged by the performance in this manner.
(2) Attempted Performance or tender – Tender is not actual performance but it is only an offer to perform the obligation, but the promisee refuses to accept the performance, tender is equivalent to actual performance, except in case of tender of money. The effect of a valid tender is that the contract is deemed to have been performed by the tenderer. The tenderer is discharged from the responsibility for non-performance of the contract without in any way prejudicing his rights which accrue to him against the promise.
2. DISCHARGE BY AGREEMENT OR CONSENT
As it the agreement of the parties which binds them, so by their further agreement or consent the contract may be terminated. The rule of law in this regard is as follows: Eodem modo quo quid constituitur eodem modo destruitur, i.e., a thing may be destroyed in the same manner in which it is constituted. This means a contractual obligation may be discharged by agreement which may be express or implied.
The various cases of discharge of a contract by mutual agreement are dealt with in Secs. 62 and 63 and are discussed below:
Example: A owes money to B under a contract. It is agreed between A, B and C that B shall henceforth accept C as his debtor, instead of A. The old debt of A to B is at end, and a new debt from C to B has been contracted.
Novation should take place before expiry of time of performance of the original contract. If it does not, there would be a breach of contract. If a new contract is subsequently substituted for the existing contract, it would only be to adjust the remedial rights arising out of the breach of the old contract. If for any reason the new contract cannot be enforced, the parties can fall back upon the old contract.
(b) Rescission (Sec.62) – Rescission of a contract takes place when all or some of the terms of the contract are cancelled. It may occur
(i) By mutual consent of the parties, or
(ii) Where one party fails in the performance of his obligation. In such a case, the other party may rescind the contract without prejudice to his right to claim compensation for the breach of contract.
Example: A promises to supply certain goods to B six months after the date. By that time, the goods go out of fashion. A and B may rescind the contract.
(c) Alteration (Sec. 62) – Alteration of a contract may take place when one or more of the terms of the contract is/are altered by the mutual consent of the parties to the contract. In such a case the old contract is discharged.
Example: A enters into contract with B for the supply of 100 bales of cotton at his godown No. 1 by the first of the next month. A and B may alter the terms of the contract by mutual consent.
(d) Remission (Sec. 63) – Remission means acceptance of lesser fulfillment of the promise made, e.g., acceptance of lesser sum than what was contracted for, in discharge of the whole of the debt.
(e) Wavier – Waiver takes place when the parties to a contract agree that they shall no longer be bound by the contract. This amounts to a mutual abandonment of rights by the parties to the contracts. Consideration is not necessary for waiver.
(f) Merger – Merger takes place when an inferior right accruing to a party under a contract merges into a superior right accruing to the same party under the same or some other contract.
Example: P holds a property under a lease. He later buys the property. His rights as a leasee merge into his rights as an owner.
3. DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE
If an agreement contains an undertaking to perform impossibility, it is void ab initio. This rule is based on the following maxims:
(1) The law does not recognize what is impossible. (2) What is impossible does not create an obligation.
According to Sec. 56. impossibility or performance may fall into either of the following categories :
(I)Impossibility existing at the time of agreement – An agreement to do an act impossible in itself is void. This is known as pre-contractual or initial impossibility. The fact of impossibility may
be--Known to the parties: This is known as absolute impossibility. For example, when A agrees with B to discover treasure by magic, or undertakes to put life into the dead wife of B, the agreement is void.
-Unknown to parties – Where at the time of making the contract both the parties are ignorant of the impossibility, as in the case of destruction of subject-matter to the ignorance of both the parties, the contract is void on the ground of mutual mistake. If, however, the promiser alone knows of the impossibility of the performance at the time of making the contract, he shall have to compensate the promisee for any loss which such promisee sustains through the non-performance of the promise.
becomes void when the act becomes impossible or unlawful. Impossibility of performance of a contract; but where this impossibility is caused due to the circumstances beyond the control of the parties are discharged from further performance of the obligation under the contract.
(III) Discharge by supervening impossibility – A contract is discharged by supervising impossibility in the following cases:
(a) Destruction of subject-matter of contract – When the subject-matter of a contract, subsequent to its formation, is destroyed without any fault of the parties to the contract, the contract is discharged.
Example: A contracted to sell a specified quantity of potatoes to be grown on his farms. The crop largely failed. Held, the contract was discharged.
(b) Non-existence or non-occurrence or a particular state of things – Sometimes a contract is entered between two parties on the basis of a continued existence or occurrence of a particular state of things. If there is any change in the state of things which formed the basis of the contract, or if the state of things which ought to have occurred does not occur, the contract is discharged.
Example: A and B contract to marry each other. Before the time fixed for the marriage. AA goes mad. The contract becomes void.
(c) Death or incapacity for a personal service – Where the performance of the contract depends on the personal skill or qualification of a party, the contract is discharged on the illness or incapacity or death of that party. The man’s life is an implied condition of the contract.
Example: An artist undertook to perform at a concert for a certain price. Before she could do so, she was taken seriously ill. Held, she was discharged due to illness.
(d) Change of law or stepping in of a person with statutory authority – When subsequent to the formation of a contract, change of law takes place, or the Government takes some power under some Ordinance or Special Act, so that the performance of the contract becomes impossible, the contract is discharged.
(e) Outbreak of war – A contract entered into with an alien enemy during war is unlawful and therefore impossible of performance. Contracts entered into before the outbreak of war are suspended during the war and may be revived after the war is over.
Example: A contracts to take in cargo fro B at a foreign port. A’s Government afterwards declares war against the country in which the port is situated. The contract becomes void when the war is declared.
4. DISCHARGE BY LAPSE OF TIME
The Limitation Act, 1963 lays down that a contract should be performed within a specified period, called period of limitation. If it is not performed and no action is taken by the promisee within the period of limitation, he is deprived of his remedy at law. In other words, we may say that the contract is terminated.
Example: The price goods sold without any stipulation as to credit should be paid within 3years of the delivery of goods. Where goods sold on credit should be paid for after the expiry of a fixed period of credit, the price should be paid within 3years of the expiry of period of credit. If the price is not paid and the creditor does not file a suit against the buyer for the recovery of price within 3years, the debt becomes time barred and hence irrecoverable.
5. DISCHARGE BY OPERATION OF LAW
A contract may be discharged independently of the wishes of the parties, i.e., by operation of law. This includes discharge –
(a) By death – In contracts involving personal skill and ability, the contract is terminated on death of the promisor. In other contracts the rights and liabilities of a deceased person pass on to the legal representatives of the deceased person.
(b) By merger – This takes place when an inferior right accruing to a party under a contract merges into a superior right accruing to the same party under the same or some other contract.
Example: P holds a property under a lease. He later buys the property. His rights as a lesee merge into his rights as an owner.
(d) By unauthorized alteration of the terms of a written agreement – Where a party to a contract makes any material alteration in the contract without the consent of the other party, the other party can avoid the contract.
An alteration which is not material or which is made to carry out the common intention of the parties does not affect the validity of contract.
(e) By rights and liabilities becoming vested in the same person – Where the rights and liabilities under a contract vest in the same person.
Example: When a bill gets into the hands of the acceptor, the other parties are discharged. This is to avoid circuity of action.
6. DISCAHRGE BY BREACH OF CONTRACT
Breach of contract means breaking of obligation which a contract imposes. It occurs when a party to the contract without unlawful excuse does not fulfill his contractual obligation or by his own act makes it impossible that he should perform his obligation under it. It confers a right of action fro damages on the injured party.
Breach of contract may be –
(I) Actual breach of contact – It may take place:
(a) At the time when performance is due – Actual breach of contract occurs when the performance is due, one party falis or refuses to perform his obligation under the contract.
Example: A agrees to deliver to B 5bags of wheat on 1st January. He does not deliver the wheat
on that day. There is breach of contract.
(b) During the performance of the contract – Actual breach of contract also occurs when during the performance of contract, one party fails or refuses to perform his obligation under the contract. This refusal to perform may be by –
(i) Express repudiation (by word or act) Where there has been some performance of the contract and one party by his word or act refuses to continue to perform his obligation in some essential respect, the other party can treat the contract as no longer binding on him and sue for breach of contract.
(II) Anticipatory breach of contract – It occurs when a party to an executory contract declares his intention of not performing the contract before the performance is due. He may do so –
(i) By expressly renouncing his obligation under the contract.
Example: A undertakes to supply certain goods to B on 1st January. Before this date he informs B
that he is not going to supply the goods. This is anticipatory breach of contract by express repudiation.
(ii) By doing some act so as that the performance of his promise becomes impossible.
Example: A promised to assign to B, within 7years from the date of his promise, all his interest in a lease for the sum of Rs.140. Before the end of 7years he assigned his interest to another person. Held, this was anticipatory breach of contract by implied repudiation.
Sec. 39 gives expression to the doctrine of anticipatory breach. The rights of the promisee in case of anticipatory breach are as follows:
(1) He can treat the contract as discharged so that he is absolved of the performance of his part of the promise.
(2) He can immediately take a legal action for breach of contract or wait till the time the act was done.
Anticipatory breach does not necessarily discharge the contract, unless the promisee so chooses. If the promisee refuses to accept the repudiation of the contract by the promisor and treats the contract as alive, the consequences are as follows:
(1) The promisor may perform his promise when the time for its performance comes and the promisee will be bound to accept the performance.
(2) If, while the contract is alive, an event happens which discharges the contract legally, the promisee looses his right to sue for damages.
