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THE INDIAN CONTRACT ACT- 1872

This Act was moulded by the English Courts, on the basis of the principle of
contract, established by the common law and equity.

Common Law is an evolved law, unwritten law the body of law developed
gradually as a result of custom and judicial decisions, as distinct from the
law laid down by legislative assemblies. It forms the basis of all law that
is applied in England. Equity, a Latin word, from Aequitas = fair justice =
according to natural law or natural justice.

Equity is ‘justice’ applied in conformity with the law, and is influenced by

the principles of ethics, fair play and natural justice. This is a modification
of common law, the system of jurisprudence that supplements common
and statutory law, when those bodies of law are inadequate in the
attainment of justice.

Meaning of Contract
• Derived from the Latin ‘contractum’ meaning ‘drawn together’
• It denotes drawing together of two or more minds to form a common
intention giving rise to an Agreement
Definition u/s 2
• Built upon a series of definition of the elements which go to make a
contract..
• Contract: an agreement enforceable by law.
• Agreement: every promise and every set of promises, forming the
consideration for each other, is an agreement.

• Promise: when one person to whom the proposal is made, signifies his
assent thereto, the proposal is said to be accepted. (Promisor and
promisee)

• Proposal: 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.

Contract

• Agreement enforceable by law is a contract.

• Agreement may be social or legal.
• Hence all contract are agreements, but all agreements are not contract.
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Contract - definition u/s 10

All agreements are contracts…..
if they are made by the free consent of the parties, competent to
contract,
for a lawful consideration and
with a lawful object and
are not hereby expressly declared to be void..
Contract
•All agreements are contracts if they are made by the free consent of the
parties, competent to contract for a lawful consideration and with a
lawful object and are not hereby expressly declared to be void..
Writing essential?
• As a rule, there is nothing in sec.2 or 10, to show that writing is
necessary...
•It may be wholly written or wholly oral or
partly written and partly oral or may be inferred from the
conduct of the parties ( implied)
Writing essential…?
• There are various other statues requiring certain classes of contracts in
writing.
• A Negotiable Instrument has always to be in writing
• Transfer of Property Act requires writing in the case of sales, mortgages,
leases and gifts.
• Trust Act (creation of a Trust) , the Companies Act( Art. Of Association /
Memo. Of Asson.)..to be writing
Essential elements
1- Free consent of parties – sec 13 – ‘consensus ad idem’ – meeting of
minds creating an identity of opinion ..
2- competency of parties: sec 11 and 12 - age of majority and soundness
of mind..

• 3- lawful consideration- sec 23 and 24 – price for the promise.

Consideration must be lawful. Any agreement made without
consideration is void
Essential elements
• 4- Lawful object- sec- 23 and 24 –
• the object of the agreement would be unlawful if its forbidden by law or..
if permitted it would defeat the provision of any law -
• Every agreement in which the object or consideration is unlawful, is
void.
Essential elements
• 5 – Not declared to be void by law – sec 24 and 30 – Certain classes of
contracts are expressly declared void by law …
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. Agreements in restraint of marriage,

• Agreements in restraint of trade
Executed Contract

• Here both parties perform their obligations, contract is said to be

executed.
• A agrees to paint a picture for B for Rs.100/-
• B paints and A gives Rs.100/-
• This is Executed contract
Executory contract

• Here the contract is remain to be carried into effect; yet to perform

• A has not yet painted the picture.
• B has not yet paid the agreed money.
Unilateral Contract
• This is a one-sided contract where only one party has to fulfill his
obligation at the time of formation of the contract.
• E.g.: when a porter takes your luggage at the railway station and done
his job to your satisfaction, you have to pay him the coolie.

Bilateral Contract
• Bilateral contract is one where the obligation on the part of both the
parties to the contracts are outstanding at the time of formation of the
contract; similar to executory contract.
Agrement in Restraint of Marriage

• A gift or bequest to a person may have a condition-either general or

partial - attached in restraint of marriage.
• A condition in general restraint of marriage is void, as being contrary to
public policy.
• A condition in restraint of a second marriage is not void.

• A condition in partial restraint of marriage is valid, and may be either to

restrain marriage with a particular class of persons, e.g. domestic
servant.
Agreement in Restraint of Trade

• If the LAW has restrained a Trader’s mode of doing things, that law must
be obeyed.

• But no power short of the general law ought to restrain his free
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discretion.

• However, contracts which are only in partial restraint of trade are good.
• A contract not to carry on the business of an fishmonger or ironmonger
Essential elements
Intention to create legal obligation:

• Mere informal promises are not be enforced.

• E.g. invitation for a dinner
5-key requirements

• In common law there are 5 elements :

• offer,
• acceptance
• consideration,
• an intention to create legal relations, and capacity..
Agreements creating obligations
• The juridical concept of contract consists of 2 elements:
• 1 – agreement and 2- obligation
• Obligation is derived form the ‘obligatio’ of Roman law..
• It demotes the relation between two persons..
• Obligation is defined as the’ vinculam juris’ =bond of legal necessity
which binds together two or more individuals.
Definition in terms of ‘consensus’ - Consensus ad idem
• An agreement occurs when two minds meet upon a common purpose.
i.e.. They mean the same thing in the same sense at the same time.
• The meeting of the minds is called ‘consensus ad idem’ = consent to the
matter.
• Freedom of contract and sanctity of contract means a meeting of minds
or identity of will of the parties in full and final agreement is considered
the essence of contract.

Obligation

• An obligation is the legal duty to do or abstain from doing what one has
promised to do or abstain from doing.
• A contractual obligation arises from a bargain between the parties to the
agreement who are called the promisor and the promisee.
• A contract is an exchange of promises by 2 or more persons, resulting in
an obligation to do something, which obligation is recognized and
enforced by law.
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Rights and Obligations

• When parties have made a binding contract, they have rights and
obligation between themselves.
• Agreements in which the idea of bargain is absent and there is no
intention to create legal relations are not contract –
• e.g. social invitation
• Balfour vs. Balfour: Husband working in Ceylon . . . . . .
3 consequences
• 1- to constitute a contract the parties must intend to create legal
relationship
• 2- the law of contract is the law of those agreements which create
obligations, and those obligations which have their source in agreement.
• 3- agreement is the genus of which contract is the species and,
therefore, all contracts are agreements, but all agreements are not
contracts.
Express Contracts
• Sec. 9 deals with it.

•Express contracts are those in which the fact of the agreement can be
proved by words, written or spoken, which express the intention of the
parties.
Implied / tacit / interference Contracts
• Sec. 9 deals with it

• In the implied contracts or tacit or inferred contracts, agreements would

be inferred from conduct of the parties and the general circumstance of
each case.
• E.g. –hiring of a taxi, boarding a bus, cinema ticket etc.

Implied contract
• A delivers a bag of rice by mistake at B’s house, instead of C. Here B is to
return or pay to A. In this transaction there is no contract, no offer or
acceptance, but an implied contract..
• Also called ‘quasi contract’ –
• ‘certain relations resembling those created by contract’
Quasi Contracts
• Quasi = having some resemblance / almost but not quite: resembling
somebody or something in some ways, but not exactly the same
• E.g.: a quasi support group, a quasi definition, a quasi success, quasi lien
…
Quasi contract
• For a valid contract, there must be offer and acceptance, capacity to
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contract, consideration and free consent. But sometimes law implies a

promise imposing obligations on one party and conferring right in favour
of the other, even when there is no offer, no acceptance, no consensus
ad idem, no agreement or promise.
• Such cases are not contract in strict sense, but the court recognizes
them relations resembling those of contract and enforces them as if they
were contract, hence the term quasi-contract.
Quasi contracts
• In truth it is not a contract at all
• It is an obligation which the law creates, in the absence of a any
agreement.
• A quasi contract rests on the equitable principle that a person should not
allowed to enrich himself unjustly at the expense of another.
Quasi contracts
• A quasi contract belongs to a different category – it is ‘sui generis’, i.e..
the only one of its kind.
• A quasi-contract rests on the equitable principle that person shall not be
allowed to enrich himself unjustly at the expenses of another.
• A quasi contractual liability arises on payment of money under a mistake
of fact, the liability is not depending on agreement or promise.

Unjust Enrichment
• Unjust enrichment, if proved, always triggers an obligation to make
restitution. It never triggers an obligation to pay compensation because
such an obligation might leave the defendant, who is normally entirely
innocent, out of pocket.
Quasi contract
Types:
Necessaries supplied to person incapable of contracting:
e.g. contract with minor or person of unsound mind are void.
But section 68 provides that the amount is recoverable from the property,
if any, of the incapable person and not from him personally.
Quasi contract
Suits for money received: u/s 69
The right to file a suit for recovery of money may arise:
Where the plaintiff paid money to the defendant under mistake, coercion,
extortion etc.
Money obtained by defendant from third parties. E.g. an Agent has
obtained a secret commission from a third party, the principal can
recovery the amount from the Agent.

Quasi contract
Quantum meruit = as much as earned or reasonable remuneration.

It is used where a person claims reasonable remuneration for the services

rendered by him, when there was no express promise to pay the definite
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remuneration.
QUANTUM MERUIT
• Quasi contracts are made possible by the doctrine of QUANTUM MERUIT,
which allows courts to imply a contract where none exists. Quantum
meruit includes implied-in-fact contracts as well as quasi contracts.
• Courts also use the term quantum meruit to describe the process of
determining how much money the charging party may recover in an
implied contract.
Quasi contract
Obligation of a finder of last goods: u/s 71
The finder must take as much care of the goods as a man of ordinary
prudent man would take of his own goods , his position is that of a
bailee. And the finder is entitled to get reward that may have been
offered by the owner and also any expenses he may have incurred in
protecting the goods
Quasi contract
Obligation of a person enjoying benefit on non-gratuitous act:
Where a person lawfully does something for another person or delivers
anything to him with out any intention, and the other person has
accepted it, that person must compensate him

Restitution

• The underlying principle is that a person who has been unjustly enriched
at the expense of another is required to make restitution to that other.
Key elements of quasi contracts
• 1-Plaintiff rendered valuable goods / services to Defendant with a
reasonable expectation of being compensated;
• 2-Defendant knowingly accepted the benefits of the goods / services;
and
• 3-Defendant would be benefited by the services / receiving the goods.
Unilateral contracts
• Unilateral is a one-sided contract, but does not mean that a contract
made by one party, but only ONE party is bound
• Here, a promise by one party is exchanged for an act on the other side.
• The promise to give a reward to the person who finds out a lost things,
forms a ‘unilateral contract...

In Carlill v. Carbolic Smoke Ball Company a medical firm advertised that

its drug would cure people's flu, and if it did not, the buyers would get
£100. Fearing bankruptcy, Carbolic argued the advert was not to be
taken as a serious, legally binding offer. It was an invitation to treat,
mere puff, a gimmick.
• But the court of appeal held that to a reasonable man, the company
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made a serious offer. People had given good consideration for it by going
to the "distinct inconvenience" of using a faulty product.
• Lord Justice Lindley, "here is a distinct promise expressed in language
which is perfectly unmistakable".

Bilateral contracts
• In a bilateral contract a promise on one side is exchanged for a promise
on the other side.
•In a bilateral contract of sale, the seller may promise to deliver the
goods on a subsequent day in return for a promise by the purchaser to
pay the price.
Combinations
• 1- a promise and an acceptance -- a gift
• 2- an act offered in return for a promise – e.g. railway porter's service;
acceptance giving rise to promise his wage
• 3- Promise offered for an act – e.g. offer of reward for bringing back a
lost article
• 4- an offer of a promise to do anything, accepted by a return promise –
e.g. offer to sell anything for a price
Void contracts
• A contract without any legal effect is a void contract – Here the contract
ceases to be enforceable by law; becomes void when it ceases to be
enforceable
• It is a nullity in the eye of the law- can not be enforced and it confers no
right on either party.

• The attempt of the parties to form an enforceable agreement has been

defeated owing to some incapacity, flaw in consent or illegality,
morality, impracticability or they are opposed to public policy.

When a contract becomes void

• An agreement not enforceable by law is void ab initio – s 2 (g)
• A contract which ceases to be enforceable by law becomes void when it
ceases to be enforceable – s 2 (j)
• …a contract becomes void when, by reason of some event which the
promisor could not prevent, the performance of a contract becomes
impossible – e.g.. War / by destruction of the subject matter after the
formation of the contract.
Void- ab initio - contracts
• ab initio = from the beginning
• If a contract is made without the true consent of the parties or for
immoral consideration, it is void ab initio.
• Sec.2 (G)- an agreement not enforceable by law is said to be void
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Void- ex post facto - contracts

• ex post facto = subsequently
• An agreement is void - ex post facto, when subsequent events made the
earlier agreement, not enforceable
• E.g. war
Voidable contracts
• The two positive elements – consensus ad idem and legal intention to
contract - will not be there..
• Here, one contract may be rescinded or affirmed at the option of the one
of the parties.

• Until is rescinded it is valid and binding.. Sec.2 (I) – an agreement that

is enforceable by law at the option of one or more of the parties thereto,
but not at the option of the others, is a Voidable contract.
Voidable contracts
• Sec.19 – when the consent to an agreement is caused by coercion, fraud
or misrepresentation, the agreement is voidable at the option of the
party whose consent was so caused.
• The distinction between a void and a voidable contract is very important.
• A third party, who purchased goods which had been the subject of a
void contract, will acquire no title to that goods
Unenforceable contracts
• Though good in substance, can not be enforced because of some
technical defect like want of a written form or stamp.
• It is a creature of procedural rather than that of substantive law

• Substantive law = law relating to legal principles, relating to the

essential principles that a court applies in its work,
• And not to the rules of procedure and practice..

Illegal contracts
• A very difficult term to define ...
• A contract contrary to criminal law; illegal contracts like agreements to
commit a crime, to defraud the revenue, contract with an alien enemy..
unlawful laws
Offer and Acceptance
• A contract is defined as a promise or agreement enforceable by law.
• The important elements are-
``an agreement and the legal obligation created thereby.
• A contract is a two-sided bargain which can be concluded by the actions
of both parties.
Offer
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• The Offer must be certain, definite, specific and legal.

• The Offer must be reasonably definite and shall require nothing to
complete it except Acceptance.
• A agrees to sell to B ‘ 100 tons of oil’.. Here there is nothing whatever to
show what kind of oil was intended. This agreement is void for
uncertainty.
Offer
• Offer may be expressed
• Offer may be implied too.
• Boarding a bus or hiring a taxi, one undertakes to pay the fare, and the
other will get him to the destination..

Offer

• LIC vs. D’souza

• Payment of premium is not construed as Acceptance by LIC

• Offer must be certain

• Acceptance must be certain
General Offer
• An offer may be specific when it is addressed to a definite individual.
• It is ‘general’ when it is made to an unascertained individual. Such an
offer can be accepted by an unascertained individual.
• When a reward is offered for bringing back a lost dog, this particular
offer is not addressed to anybody in particular, though it is deemed to
have been accepted by one individual who brings it back and claims the
reward.
Carlill vs. Carbolic Smoke Ball Co.
• CSB Co. advertised that they would pay
100 pounds to anyone who caught fever after using their medicine. They
stated that 1000 pounds was deposited in a bank to show their sincerity.
Mrs.Carlill used the medicine but got fever and she sued for the reward.
In the suit that followed, the company was held liable.
Invitation to treat

• Every expression of willingness to enter into a contract may not amount

to an offer. It may be only a preliminary step in the formation of a
contract. Hence the difference between ‘offer’ and “invitation to treat’.
• Where a shop-keeper displays goods in a shop window that is to be
construed as an invitation to treat..
Railway time-table
• The railway time-tables usually contain provision exempting the liability
of the railway in case of delay.
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• But extending the price of the ticket is considered as an ‘offer’

and the issuing of ticket as an ‘acceptance’..
Acceptance

• Acceptance is the expression of assent to the proposal by the person to

whom the proposal is made.
• To constitute a valid acceptance the assent must be communicated to
the offeror.
Rejection
• If the offer is rejected by the offeree, there is no more the possibility of
any acceptance.
REVOCATION

An offer may revoked by the Offeror at any time before

acceptance
Intention to create legal obligations
• There must be an intention to create legal obligation between the
contracting parties.
• E.g. A invites his friend B to dinner, B accepts the offer but then fails to
turn up. There has not been any legally enforceable contract between
them.
CONSIDERATION
• Sec 10 –
requires lawful consideration - as an essential element for giving
enforceability to an Agreement
• Sec 25 - requires, an agreement made without consideration is void
• Sec 23 and 24 - deal with the circumstances in which the consideration
will be treated unlawful
CONSIDERATION
• In India, the rule is expressed in the maxim, “ ex nudo pactum non
oritur actio”
= no action arises from a nude agreement
The term “nudum pactum” refers to an agreement without consideration.
Definition – u/s 2 (d)
• When, at the desire of the promisor,
the promisee 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 is called
a consideration for the promise.
Agreements without consideration
• An agreement made with out consideration is void.. or gratuitous
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promises are not enforceable in law.

• Statutory exceptions:
• An agreement made on account of natural love and affection between
parties standing in near relation to each other..... is expressed in writing
and registered ...
Agreements without consideration
• - if it is a promise to compensate, wholly or in part, a person who has
already voluntarily done something for the promisor....
• E.g. A supports B’s infant son, B promises to pay A’s expenses in so
doing. This is a valid contract
Agreements without consideration
• - if it is a promise made in writing and signed...to pay wholly or in part,
a debt which the creditor might have enforced for the law of limitation..
e.g. A owes B Rs. 1000, but the debt is barred by the Limitations Act.
A signs a written promise to pay B Rs.500 on account of the debt...this is
a valid contract
Consideration
• Consideration must be real or of some value in the eyes of the law, must
not be unreal, illusory or a purely moral obligation..
• It must be certain and lawful – A promises to supervise, on behalf of B,
an illegal activity and B promises a salary of Rs.10000.
• This agreement is void, as consideration for B’s promise being is
unlawful
Consideration- forbearance
• Forbearance = refraining from legal act

• A forbearance to take proceedings to enforce a demand, may be a good

consideration for a promise by the debtor.
Past Consideration
• When consideration by a party for a present promise was given in the
past, i.e.. before the date of the promise, it is past consideration.
• E.g.. A renders some service to B at latter’s desire. After a moth B
promises to compensate A for the service. It is past consideration and
can recover the promised amount.
Present or Executed
consideration
• When consideration is given simultaneously with promise, i.e., at the
time of promise, it is present consideration.
• E.g.. In a cash sale, the consideration is Present or Executed.
• A receives Rs. 50/- in return for which he promises to deliver certain
goods to B. A receipt is the present consideration for the promise he
makes to deliver to the goods.
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Future or Executory
Consideration
• When consideration from one party to the other is to pass subsequently
to the making of the contract, it is a Future consideration.
• E.g.. D promises to deliver certain goods to P after a week. P promises to
pay the price after a fortnight.
• The promise of D is supported by promises of P; it is Executory
Consideration.
Capacity of parties – s 10, 11, 12
• S-10 -The parties to a contract must be competent to contract
• S-11 - every person is competent to contract who is of the age of
majority, who is of sound mind and who is not disqualified from
contracting by any law ..
• S- 12- explains the circumstances in which person will be said to be of
should mind for the purpose of entering into a contract
Capacity of parties

•The age of majority in India is governed by the Indian Majority Act of

1875 –
…anybody will attain majority when he has completed 18 years of age.
Mental Incapacity
• Insanity

• Drunkenness

• Other incapacity includes – Political status

Alien enemies
Mistake

• Mistake may be said to arise when the parties have not meant the same
thing,
or one or both, while meaning the same thing, may have formed untrue
conclusions about some of the essential element in the agreement.
It is grouped into :
1- mistakes in the expression of the contract
2- mistakes as to the motive for entering into the contract
3-mistake as to the nature or contents of it
4- mistake as to the identity of the contracting parties.
Mistake
u/s 20
• The mistake must be of both the parties-common and not unilateral
• It must be a mistake of fact and not of mistake of law
• It must be about a fact essential to the agreement
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Coercion - u/s 15
• Free consent of parties is essential ...
• Consent is said to be free when it is not caused by coercion, undue
influence, fraud, misrepresentation or mistake.
• ‘coercion’ is the committing, or threatening to commit any act forbidden
by the IPC, or the unlawful detaining, or threatening to detain, any
property, to the prejudice of any person whatever, with the intention of
causing any person to enter into an agreement.
undue influence
u / s -16
• It is an equitable doctrine.
• Where a confidential relationship exits between the parties, undue
influence between the parties will be presumed to have been exercised
by the party in who confidence it was reposed by the other.
• E.g.. Parent and child
• Guardian and ward
• Advocate and client
• Doctor and patient
• Spiritual Adviser and disciple
Wagering contracts -u/s 30
• A wager means a bet.
• The subject matter may be anything – either gain or loss, wholly
dependent on an uncertain event
• In India, agreement by way of wager are void – no suit shall be brought
for recovering anything alleged to be won on any wager
Exception

• In favour of certain prizes for horse racing

• “ an agreement made towards a prize of amount of Rs.500 or upwards,
to be awarded to the winners of any horse race shall be not rendered
unlawful “
Provision under Income Tax Act
is it a controversy?
• Under s.2 (24) Clause (IX) of Income Tax Act, ..”any winnings from
lotteries, crossword puzzle, races, including horse race, card games and
other games of any sort or from any gambling or betting or any form or
nature whatsoever’…are subject to tax.
• Here gambling and betting or participation in lotteries could probably be
a business in rare cases for a professional gambler and not for a person
who participates in a game of cricket forecast as a matter of hobby.
Contingent Contracts –ss 31 to 36
• A contingent contract is a conditional contract………
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• It is a contract to do or not do something, if some event, collateral to

such contract, does or does not happen;
• E.g. A contract to pay B Rs. 2 lac if B’s house is burnt – this contract of
fire insurance , is a contingent contract.
Novation

• A circumstance in which an assignment of a burden or liability of a

contract is recognized is called Novation
• A owes money to B under a contract
• It is agreed between A, B and C that B shall be thenceforth accept C as
his debtor, instead of A.
Breach of Contract
• When a party does not fulfill his undertaking at a stipulated time, he is
liable for breach.
• Section 55 of the Act refers to cases where TIME is of the essence of
contracts
Anticipatory Breach –s-39
• An ANTICIPATORY breach of contract may take place before the time
actually fixed for the performance.
It may arise due to:
• 1- by an impossibility of performance created by a party – an agreement
to sell a car, made impossible by sale of the same car to another person
before the agreement date.
• 2 - by repudiation, disapprove, deny, of contract by one party
• An agreement to let out a house, made impossible by sale of that house

Doctrine of Frustration
• Frustration may be defined as –
the premature termination of an agreement between parties lawfully
entered into and
in the course of operation at the time of its premature termination,
owing to the occurrences of an event, so fundamental as to be regarded
by the law as striking at the root of the agreement, and as entirely
beyond what was contemplated by the parties when they entered into
the agreement.
The Doctrine of Frustration
• It describes a situation where after the conclusion of a contract,
unforeseeable events occur, rendering the performance of that contract
impossible.
• Under that doctrine, courts have the power to discharge any contract
that falls within its scope as "frustrated".
• Courts nowadays seem to be reluctant when it comes to discharging
contracts as frustrated. The current policy on such matters is to prevent
parties from using the doctrine as a defence protecting them from a bad
bargain.
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Doctrine of Frustration
• Frustration = a feeling of disappointment
• Non-occurrence of a particular event – the ‘coronation case’ –
• The plaintiff Krell had agreed to let a flat to the defendant Hentry for
June 26 and 27, 1902, to view the coronation procession of King Edward
VIII.
• The rent had not become payable when the procession was abandoned.
• The Court held that he could not recover the rent

Doctrine of Frustration
If a contract is made, and for whatever reason it later becomes impossible
to for one party to perform their obligations, then it is case of
frustration.
• it should be noted that frustration is about subsequent impossibility; if a
contract was impossible to perform right from the outset, then the issue
is one of mistake and not frustration.

A force majeure clause

• We should first establish whether a particular situation in question has
been expressly provided for in the contract. Such a provision is called a
force majeure clause.
• E.g., a contract for the sale of some goods being imported by sea might
say, “in the event of the cargo being lost at sea, this is what happens…”.
A force majeure clause is only valid if the provision is full and complete –
that is, it has to be specific about what risk is being provided for.

Supervening illegality
• Since the contract was made, a new law has made it illegal to carry it
out.
• In Avery v Bowden (1856), where a ship was supposed to pick up some
cargo at Odessa. With the outbreak of the Crimean War, the government
made it illegal to load cargo at an enemy port, so the ship could not
perform its contract without breaking the law.
• The contract was therefore frustrated.
Doctrine of Frustration
• Further performance rendered impossible.
the key reasons:
– Destruction of the subject matter:
– e.g. I agree to sell you my house, but then my house burns down.
– The non-availability of a party, due to death, illness, or other
exceptional circumstances.
– e.g. you hire a singer to play at a party, but the singer is taken ill and
can’t perform.

Corresponding Indian law – Impossibility of Performance u/s 56

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• Agreement to do impossible act –

e.g.. A agrees with B to discover treasure by magic
• Contract to do act afterwards becoming impossible or unlawful.
e.g. A contracts to take goods for B to a foreign port. Later war declared
between two nations- the contract becomes void
Doctrine of Frustration and section 56
• According to Section 56, an agreement to do an act impossible in itself is
void.
• Supervening impossibility refers to the interruption of an unexpected
event beyond the contemplation of the parties; such event must be so
fundamental as to be regarded as striking at the root of contract.
Subsequent impossibility is referred to as Doctrine of Frustration.
Doctrine of Frustration and section 56
• The impossibility does not discharge a person from the contract. He who
agrees to do an act should do it unless impossibility arises…
• Section 56 of the Indian Contract Act, 1872 stipulates:

"Agreement to do impossible act: An agreement to do an act impossible

in itself is void.

Contract to do act afterwards becoming impossible or unlawful: A

contract to do an act which, after the contract is made, becomes
impossible, or, by reason of some event which the promisor could not
prevent, unlawful, becomes void when the act becomes impossible or
unlawful.

Doctrine of Frustration and section 56

Frustration is a developing concept; like negligence, its categories are as

wide as the categories of human conduct. Its effect is immediate,
automatic.
It beheads a contract without the option of either party which becomes
dissolved. If the parties later purport to act under it they are really
making a new contract.
HAPPENING OF UNPRECEDENTED EVENTS CAUSES FRUSTRATION
• To attract the plea of frustration, it must be shown that the situation has
changed so drastically that neither party was helpless resulting in
execution of the contract impossibility.
Where after a contract for supply of transformers, there was a
subsequent 400% rise in price of transformer oil due to the war, there
was frustration of contract. The abnormal increase in price due to war
condition, was an untoward event which "totally upset the very
foundation upon which the parties rested their bargain." Therefore,
supplier could be said to be finding itself impossible to supply the
transformers which it promised to do.
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DISCHARGE OF CONTRACT
• Contracts may be discharged or terminated by any of the following
modes:
• Performance of the contract
• Mutual consent or agreement
• Lapse of time
• Operation of law
• Impossibility of performance and
• Breach
• (discharge=carry out or to complete a duty, responsibility or promise
successfully)

DISCHARGE OF CONTRACT
• 1-performance of the contract- -section 37 provides that the parties to a
contract must either perform or offer to perform their respective
promises, unless such performance is dispensed with or excused.
• In the case of death of the promisor before performance, the
representative of the promisor are bound to perform the promise unless
a contrary intention appears from the contract.
DISCHARGE OF CONTRACT
• Tender of Performance :S- 38
• It is sometimes sufficient if the promisor performs his side of the
contract.
• Then, if the performance is rejected, the promisor is discharged from
further liability.

DISCHARGE OF CONTRACT
• Tender of Performance :S- 38
• To be valid, a tender must fulfill the following conditions:
• It must be unconditional
• It must be made at a proper time and place

DISCHARGE OF CONTRACT
• Discharge by mutual consent or agreement – u/s 62 and 63:
• An agreement may be discharged by the agreement of all parties to the
contract or waiver or release by the party entitled to performance.
• It takes various forms – e.g.. Novation, where a new contract is
substituted for an existing contract.

DISCHARGE OF CONTRACT

• Discharge by lapse of Time: The Limitation Act affords a good defence to

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suits for breach of contract.

DISCHARGE OF CONTRACT
• Discharge by Operation of Law: Discharge under this head may take
place as follows:
-by unauthorized alteration of items in a written document: where a
party to a written contract makes any material alteration, the other
person can avoid it.
- by insolvency: the Insolvency Act provides for discharge of contract
under particular circumstances

Discharge by Impossibility or Frustration – S 56

• Where at the outset it is clearly impossible to perform a contract, such
contract lacks an essential element, that is, intention of the parties, and
is void.
• E.g.. A contract to walk across water –
• Such an impossibility is patent and known to the parties
Discharge by supervening impossibility

• (supervene = follow unexpectedly)

• A contract will be discharged by subsequent or supervening impossibility
in the following ways:
• Where the subject matter of the contract is destroyed with out the fault
of the parties, the contract is discharged
• When a contract is entered into on the basis of the continued existence
of certain state of affairs, the contract is discharged if the state of things
changes.
Discharge by supervening impossibility

• Where a personal qualifications of a party is the basis of the contract,

the contract is discharged by death or physical disability of that party.

Discharge by supervening illegality

• A contract which is contrary to law at the time of formation is void. But
if, after the making of the contract, owning to alteration of the law, the
performance of the contract becomes impossible, the contract is
discharged.
• E.g.. A enters into a contract with B for cutting banyan tree. Later by
statutory provision, cutting banyan tree is prohibited.

Cases where there is non Supervening impossibility

• Difficulty of performance: the mere fact that performance is more
difficult or expensive than the parties anticipated, does not discharge
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the duty to perform.

• Commercial impossibilities do not discharge the contract. A contract
does not become impossible of performance because expectation of
higher profits is not realized.

Cases where there is non Supervening impossibility

• Strikes, lockouts and civil disturbances, riots do not terminate contract
unless there is such a clause in the contract for non-performance.
• Supervening impossibility of illegality is known as “frustration” under
the English Law.
Discharge by Breach
• Where the promisor neither performs his contract nor does he tender
performance, or where the performance is defective, there is a breach of
contract, which may be:
• -Actual: the actual breach may takes place either at the time the
performance is due or when actually performing the contract.
Discharge by Breach
• - Anticipatory: The anticipatory breach, i.e.. A breach before the time for
the performance has arrived. This may also take place in 2 ways:
• 1- by the promisor doing an act which makes the performance of his
promise impossible
• 2- by the promisor in some other way showing his intention not to
perform it.
Remedies
for breach of contract
The injured party may :
Rescind-cancel-repudiate-the contract
Sue for damages
Sue for specific performance
Sue for an injunction to restrain the breach of negative term
Sue on quantum meruit

Rescission
• When a party has broken a contract, the other party may treat the
contract as rescinded and he is free from all his obligations.
•Under Sec. 65, when a party treats the contract as rescinded, he himself
liable to restore any benefits he has received under the contract to the
party from who such benefit were received.
Damages
• Damages u/ 73:
• The person injured by a breach of contract can claim damages from the
other party for compensating the loss suffered.
• .The loss or damages depends on specific circumstances of each event.
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Damages u / s 74

• Damages can be defined as the amount adjudged to be paid as

compensation; not as punishment, for the loss sustained by the latter in
consequence of the breach of a contractual obligation.
• Measurement of Damages: Estimation of damages arising from a breach
of contract, the means which existed of remedying the inconvenience
caused by the non-performance of the contract must be taken into
account.
Damages
• Liquidated Damages:
Where the contracting parties agree in advance the amount payable in the
event of breach the sum payable is called
‘Liquidated Damages’.
Liquidated Damages
• Where the contracting parties fix at the time of contract the amount of
damages that would be payable in case of breach. In English law, the
question may arise whether the term amount to ‘liquidated damages’ or
a ‘penalty’
• Where the amount fixed is a genuine pre-estimate of the loss in case of
breach, it is liquidated damages and will be allowed.
• If the amount fixed is without any regard to probable loss, but is
intended to frighten the party and to prevent him from committing
breach, it is a penalty.
• In India, there is no such differentiation – court allows for ‘reasonable
compensation’.

Unliquidated Damages

• These are of the following kinds:

• 1- Ordinary or General: these are restricted to pecuniary compensation
to put the injured party in the position he have been, had the contract
been performed. It is the estimated amount of loss actually incurred.
Unliquidated Damages:

e.g.. In a contract for sale of goods, the damages payable would be

different between the contract price and the price at which goods are
available on the date of breach..

Unliquidated Damages:

• -2- special damages – are those resulting from breach of contract under
some peculiar circumstances.
• If at the time of entering into the contract, the party has given notice of
special circumstances which makes special loss, the likely result of the
breach in the ordinary course of things.
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• Then upon the breaking, the contract and the special loss following the
breach, he will be required to make good the special loss.
Unliquidated Damages:

• E.g. A delivered goods to the Railway, told specifically that if the goods
did not reach the destination for an exhibition-purpose, on the stipulated
time, he would suffer special loss. The goods reached late.
• A can claim special damages.

Unliquidated Damages
• -3- Exemplary Damages are awarded with a view to punishing the
defendant, and are not as a rule, granted in case of contract.

Unliquidated Damages
• E.g.1- breach of promise to -3- Exemplary Damages are awarded with a
view to punishing the defendant, and are not as a rule, granted in case
of contract.

• Marry
• - 2-wrongful dishonor of a customer's Cheque by the banker
Unliquidated Damages
• -4-Nominal Damages consist of a small token award,
• e.g.. A single rupee, where there has been an infringement of a
contractual right, but no actual loss has been suffered
Specific Relief
• 1- Specific Performance:
• The injured party may obtain a decree for specific performance of the
contract..
• For e.g. in the case of immovable property, the court may interfere to
recover it for the injured party.
• 2 – Mandatory Injunction: The court will direct the party to do some act
as per the agreed contract.