UNIVERSITY OF MANAGEMENT AND TECHNOLOGY

INDUSTRIAL RELATIONS AND LABOR LAWS

(HR-650)

Submitted By Submitted To Topic Number of words

Muhammad Haris Salam Mr. Waqar Saeed Khan

Contract Act

7,000

Date submitted

11/11/2010

ASSIGNMENT 1
MASTERS IN HUMAN RESOURCE MANAGEMENT

Declaration I certify the content of the assignment to be my own and original work and that all sources have been accurately reported and acknowledged, and that this document has not previously been submitted in its entirety or in part at any educational establishment.
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TABLE OF CONTENTS
1. SOME BASIC DEFINITIONS ____________________________________________ 5
1.1 Contract ________________________________________________________________ 5 1.2 Agreement ______________________________________________________________ 5 1.3 Promise ________________________________________________________________ 5 1.4 Proposal/Offer ___________________________________________________________ 5 1.5 Consideration ___________________________________________________________ 5

2.

CONTRACT ________________________________________________________ 6
2.1 Agreement ______________________________________________________________ 6 2.2 Legal Obligation __________________________________________________________ 6

3.

GENERAL PRINCIPLES OF CONTRACT ____________________________________ 8

3.1 Offer and Acceptance _____________________________________________________ 8 3.2 Intention to Create Legal Relationship ________________________________________ 8 3.3 Capacity of Parties (Competence)____________________________________________ 8 3.4 Lawful Consideration______________________________________________________ 8 3.5 Free Consent ____________________________________________________________ 8 3.6 Lawful Object ____________________________________________________________ 9 3.7 Agreement Not Declared Void or Illegal _______________________________________ 9 3.8 Certainty _______________________________________________________________ 9 3.9 Possibility of Performance _________________________________________________ 9 3.10 Legal Formalities ________________________________________________________ 9

4. 5.

TYPES OF CONTRACTS ______________________________________________ 10 REMEDIES FOR BREACH OF CONTRACT _________________________________ 12

5.1 Rescission of Contract ____________________________________________________ 12 5.2 Suit of Damages _________________________________________________________ 12
5.2.1 Ordinary or General or Compensatory Damages _________________________________ 5.2.2 Special Damages___________________________________________________________ 5.2.3 Exemplary or Vindictive Damages _____________________________________________ 5.2.4 Nominal Damages _________________________________________________________ 5.2.5 Liquidated Damages & Penalty _______________________________________________ 5.2.6 Cost of Suit _______________________________________________________________ 12 13 13 13 13 14

5.3 Suit upon Quantum Merit _________________________________________________ 14 5.4 Suit for Specific Performance ______________________________________________ 15 5.5 Suit for an Injunction _____________________________________________________ 15

2 HARIS SALAM

6.

DISCHARGE OF CONTRACT ___________________________________________ 16

6.1 Discharge by Performance ________________________________________________ 16
6.1.1 Actual Performance ________________________________________________________ 16 6.1.2 Attempted Performance or Tender ____________________________________________ 16

6.2 Discharge by Mutual Consent or Agreement __________________________________ 16

6.2.1 Novation _________________________________________________________________ 6.2.2 Alteration ________________________________________________________________ 6.2.3 Rescission ________________________________________________________________ 6.2.4 Remission ________________________________________________________________ 6.3.1 Impossibility at the Time of Contract __________________________________________ 6.3.2 Subsequent Impossibility ____________________________________________________ 6.3.3 Cases - Application of Supervening Impossibility _________________________________ 6.3.4 Cases Not Covered by Supervening Impossibility _________________________________ 16 17 17 17 17 17 17 18

6.3 Discharge by Subsequent / Supervening Impossibility or Illegality ________________ 17

6.4 Discharge by Lapse of Time ________________________________________________ 19 6.5 Discharge by Operation of Law _____________________________________________ 19
6.5.1 Death ___________________________________________________________________ 6.5.2 Insolvency ________________________________________________________________ 6.5.3 Merger __________________________________________________________________ 6.5.4 Unauthorized Material Alteration _____________________________________________ 19 19 19 19

6.6 Discharge by Breach of Contract ____________________________________________ 20

6.6.1 Anticipatory Breach ________________________________________________________ 20 6.6.2 Actual Breach _____________________________________________________________ 20

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SAMPLE COOPERATIVE RESEARCH AGREEMENT _________________________ 21

REFERENCES __________________________________________________________ 25

HARIS 3 SALAM

QUESTION
What do you understand by the general principles of contract? What are remedies for breach of contract and how a party is discharged from the contractual liabilities? Draft a sample contract.

ANSWER
The assignment mainly comprises of four parts: 1. 2. 3. 4. General principles of contract Remedies for breach of contract Discharge of contract A sample contract

In the first part, I would present some essential elements / general principles under-lying every contract. Without fulfilling these legal requirements, no one can enter into a contract. In the second part of this assignment, I would highlight some remedies available to the injured party in case of breach of a contract. Here I would discuss different kinds of damages given to injured parties in different scenarios. In the third part of the report, I would be presenting ways how a party can be discharged from the contractual liabilities. And lastly, I would be giving a sample contract for further elaboration. But before moving to the actual topics, we would first learn some basic definitions, and then have a glimpse over how the law defines contract.

1. SOME BASIC DEFINITIONS 1.1 Contract

A contract is an agreement enforceable by law. Thus, Contract = Agreement (+) Enforceability by Law All contracts are agreements but all agreements are not contracts

1.2 Agreement
An agreement means, Every promise or every set of promises, forming consideration for each other. Agreement = Promise(s) By One Party (+) Promise(s) By the Other Party

1.3 Promise
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. Promise = Proposal + Acceptance

1.4 Proposal/Offer
A person is said to make a proposal when he signifies to another his willingness to do or to abstain from doing anything with a view to obtaining assent of that other to such act or abstinence Proposal = willingness to do or abstain from doing (+) willingness to obtain assent of the other party to such act or abstinence

1.5 Consideration
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 is called consideration. In other words, consideration is something in return.

2. CONTRACT
According to section 2 (h) of the Indian Contract Act: An agreement enforceable by law is a contract. A contract, therefore, is an agreement the object of which is to create a legal obligation i.e., a duty enforceable by law. From the above definition, we find that a contract essentially consists of two elements: 1. An agreement, and 2. Legal obligation i.e., a duty enforceable by law. We shall now examine these elements in detail.

2.1 Agreement
As per section 2 (e): Every promise and every set of promises, forming the consideration for each other, is an agreement. Thus it is clear from this definition that a promise is an agreement. What is a promise? The answer to this is contained in section 2 (b) which defines the term: 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. An agreement, therefore, comes into existence only when one party signifies his assent (i.e., gives his acceptance) thereto. In short, an agreement is the sum total of offer and acceptance. On analyzing the above definition, the following characteristics of an agreement become evident: Plurality of persons. There must be two or more persons to make an agreement because one person cannot enter into an agreement with himself. Consensus-ad-idem. Both the parties to an agreement must agree about the subject-matter of the agreement in the same sense and at the same time.

2.2 Legal Obligation

As stated above, an agreement to become a contract must give rise to a legal obligation i.e., a duty enforceable by law. If an agreement is incapable of creating a duty enforceable by law, it is not a contract. Thus an agreement is a wider term than a contract. All contracts are agreements but all agreements are not contracts. Agreements of moral, religious or social nature e.g., a promise to lunch together at a friends house or to take a walk together are not contracts because they are not likely to create a duty enforceable by law for the simple reason that the parties never intended that they should be attended by legal consequences.

In business agreements the presumption is usually that the parties intend to create legal relations. Thus an agreement to buy certain specific goods at an agreed price e.g., 100 bags of wheat at Rs. 430 per bag is a contract because it gives rise to a duty enforceable by law, and in case of default on the part of either party an action for breach of contract could be enforced through a court provided other essential elements of a valid contract as laid down in Section 10 are present, namely, if the contract was made by free consent of the parties competent to contract, for a lawful consideration and with a lawful object. Thus it may be concluded that the Act restricts the use of the word contract to only those agreements which give rise to legal obligations between the parties. It will be appropriate to point out here that the law of contract deals only with such legal obligations which spring from agreements. Obligations which are not contractual in nature are outside the purview of the law of contract. For example, obligation to maintain wife and children (status obligation), obligation to observe the laws of the land, and obligation to comply with the orders of a court of law do not fall within the scope of the Contract Act. Salmond has rightly observed: The law of contracts is not the whole law of agreements, nor is it the whole law of obligations. It is the law of those agreements which create obligations, and those obligations, which have their source in agreements.

3. GENERAL PRINCIPLES OF CONTRACT

A contract has been defined in Section 2 (h) as an agreement enforceable by law. To be enforceable by law, an agreement must possess the essential elements of a valid contract as contained in Sections 10, 29 and 56. According to Section 10, All agreements are contracts if they are made by free consent of parties, competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void, and, where necessary, satisfy the requirements of any law as to writing or attestation or registration. The essential elements of a valid contract are:

3.1 Offer and Acceptance

There must be a lawful offer and a lawful acceptance of the offer, thus resulting in an agreement. The adjective lawful implies that the offer and acceptance must satisfy the requirements of the Contract Act in relation thereto.

3.2 Intention to Create Legal Relationship

When the two parties enter into an agreement, there must be an intention by both parties to legally bind the other as a result of such agreement. Thus, agreements of social or household nature are not contracts.

3.3 Capacity of Parties (Competence)

The parties to the agreement must be capable of entering into a valid contract. According to Section 11, every person is competent to contract if he or she, is of the age of majority; is of sound mind; and is not disqualified from contracting by any law to which he is subject.

3.4 Lawful Consideration

An agreement to form a valid contract should be supported by consideration. Consideration means something in return (quid pro quo). It can be cash, kind, an act or abstinence. It can be past, present or future. However, consideration should be real and lawful.

3.5 Free Consent

To constitute a valid contract there must be free and genuine consent of the parties to the contract. It should not be obtained by misrepresentation, fraud, coercion, undue influence or mistake.

3.6 Lawful Object

The object of the agreement must not be illegal or unlawful. According to Section 23, the consideration or object of an agreement is lawful, unless It is forbidden by law; or Is of such nature that, if permitted it would defeat the provisions of any law or is fraudulent; or Involves or implies, injury to the person or property of another; or The court regards it as immoral, or opposed to public policy.

3.7 Agreement Not Declared Void or Illegal

Agreements which have been expressly declared void or illegal by law are not enforceable at law; hence does not constitute a valid contract.

3.8 Certainty
Section 29 of the Contract Act provides that Agreements, the meaning of which is not certain or capable of being made certain, are void. In order to give rise to a valid contract the terms of the agreement must not be vague or uncertain. It must be possible to ascertain the meaning of the agreement, for otherwise, it cannot be enforced.

3.9 Possibility of Performance

Yet another essential feature of a valid contract is that it must be capable of performance. Section 56 lays down that An agreement to do an act impossible in itself is void. If the act is impossible in itself, physically or legally, the agreement cannot be enforced at law.

3.10 Legal Formalities

A contract may be oral or in writing. If, however, the law requires for a particular contract, it should comply with all the legal formalities as to writing, registration and attestation.

4. TYPES OF CONTRACTS
CLASSIFICATION OF CONTRACTS

On The Basis Of Validity Valid contract Void contract Voidable contract Void agreement

On The Basis Of Formation Express contract Implied contract Quasi contract

On The Basis Of Performance Executed contract Executory contract Unilateral contract Bilateral contract

Valid contract: An agreement which has all the essential elements of a contract is called a valid contract. A valid contract can be enforced by law. Voidable contract [Section 2(i)]: An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of other or others, is a voidable contract. If the essential element of free consent is missing in a contract, the law confers right on the aggrieved party either to reject the contract or to accept it. However, the contract continues to be good and enforceable unless it is repudiated by the aggrieved party. Void contract [Section 2(j)]: A void contract is a contract which ceases to be enforceable by law. A contract when originally entered into may be valid and binding on the parties. It may subsequently become void. Void agreement: An agreement not enforceable by law is said to be void. Such agreement does not confer any right to any of the parties to it. The agreement, in such a case, is void-ab-initio (from the very beginning). Such an agreement does not result in a contract at all. Unenforceable contracts: Where a contract is good in substance but because of some technical defect cannot be enforced by law is called unenforceable contract. These contracts are neither void nor voidable. Illegal agreement: An agreement is illegal if it is forbidden by law; or is of such nature that, if permitted, would defeat the provisions of nay law or is fraudulent; or involves or implies injury to a person or property of another, or court regards it as immoral or opposed to public policy. These agreements are punishable by law. These are void-ab-initio. All illegal agreements are void agreements but all void agreements are not illegal.

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 Express contract: Where the terms of the contract are expressly agreed upon in words (written or spoken) at the time of formation, the contract is said to be express contract. Implied contract: An implied contract is one which is inferred from the acts or conduct of the parties or from the circumstances of the cases. Where a proposal or acceptance is made otherwise than in words, promise is said to be implied. Quasi contracts: A quasi contract is created by law. Thus, quasi contracts are strictly not contracts as there is no intention of parties to enter into a contract. It is legal obligation which is imposed on a party who is required to perform it. A quasi contract is based on the principle that a person shall not be allowed to enrich himself at the expense of another. Executed contract: An executed contract is one in which both the parties have performed their respective obligation. Executory contract: An executory contract is one where one or both the parties to the contract have still to perform their obligations in future. Thus, a contract which is partially performed or wholly unperformed is termed as executory contract. Unilateral contract: A unilateral contract is one in which only one party has to perform his obligation at the time of the formation of the contract, the other party having fulfilled his obligation at the time o the contract or before the contract comes into existence. Bilateral contract: A bilateral contract is one in which the obligation on both the parties to the contract is outstanding at the time of the formation of the contract. Bilateral contracts are also known as contracts with executory consideration.

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5. REMEDIES FOR BREACH OF CONTRACT

Whenever there is breach of contract, the injured party becomes entitled to any one or more of the following remedies against the guilty party: 1. 2. 3. 4. 5. Rescission of contract Suit of damages Suit upon quantum meruit Suit for specific performance of the contract Suit for injunction

5.1 Rescission of Contract

When there is breach of contract by one party, the other party may rescind the contract and need not perform his part of obligations under the contract and may sit quietly if he does not want to take any legal action against the guilty party. But in case the aggrieved party intends to sue guilty party for damages for breach of contract, he has to file a suit for Rescission of Contract. When the court grants rescission, the aggrieved party is freed from all his obligations under the contract, and becomes entitled to compensation for damages which he has sustained through the non-fulfillment of contract.

5.2 Suit of Damages

Damages are monetary compensation allowed to the injured party for the loss or injury suffered by him as a result of breach of contract. The fundamental principal underlying damages is not punishment but compensation. By awarding damages the court aims to put the injured party into the position he would have been, had there been performance and not breach, and not to punish the defaulter party. Following are some types of damages:

5.2.1 Ordinary or General or Compensatory Damages

When a contract has been broken, the injured party can, as a rule, always recover from the guilty party ordinary or general damages. These are such damages as may fairly and reasonably be considered as arising naturally and directly in the usual course of things from the breach of contract itself. Generally in the use of a contract for sale and purchase the general rule as regards measure of damages is that the damages would be assessed on the basis of difference between the contract price and the market price at the date of breach. Ordinary damages cannot be claimed for any remote or indirect loss or damage by breach of contract and the damages will be paid only for those loss which arises naturally in the usual course of things. e.g., a railway passengers wife caught cold and fell ill due to his being asked to get down at a place other than the railway station. In a suit by the plaintiff against the railway company held damages for personal inconvenience of plaintiff alone 12

can be granted, but not for sickness of plaintiffs wife, because it was very remote consequence.

5.2.2 Special Damages

These damages are claimed in the case of loss of profit etc. When there are certain special or extraordinary circumstances present and their existence is communicated to the promisor, the non performance of promise entitles the promisor to not only the ordinary damages but also damages that may result there from. The communication of special circumstances in a prerequisite to the claim for special damages.

5.2.3 Exemplary or Vindictive Damages

There are such damages which are awarded with a view to punish the guilty party for the breach and not by way of compensation for loss suffered by the aggrieved party. This mode is adopted only in following two situations Breach of contract to marry: In this case the amount of damages will depend upon the extent of injury to the partys feelings. One may be ruined, other may not mind so much Dishonor of a cheque by a banker when there are sufficient funds to the credit of customers: In this case the rule of ascertaining damages is the smaller the cheque, the greater, the damage. Of course, the actual amount of damages will differ according to the status of party.

5.2.4 Nominal Damages

Nominal damages are those which are awarded only for the name sake. These are neither awarded by way of compensation to the aggrieved party nor by way of punishment to the guilty party. These are awarded to establish the right to decree for breach of contract when the injured party has not actually suffered any real damage and consist of a very small sum of money, say a rupee or two. e.g., where in a contract of sale of goods, if the contract price and the market price is almost the same at the date of breach of contract, then the aggrieved party is entitled only to Nominal Damages.

5.2.5 Liquidated Damages & Penalty

Sometimes parties themselves at the time of entering into a contract agree that a particular sum will be payable by a party in case of breach of contract by him. Such a sum may either be by way of liquidated damages or it may be by way of penalty. The essence of liquidated damages is a genuine covenanted pre-estimate of damages. Thus, the stipulated sum payable in case of breach is to be regarded as liquidated damages if it be found that parties to the contract conscientiously tried to make a preestimate of loss which might happen to them in case the contract was broken by any of them.

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On the other hand, the essence of penalty is a payment of money stipulated as in terrorem of the offending party. Thus if it is found that the parties made no attempt to estimate the loss that might happen to them on breach of contract but still stipulated a sum to be paid in case of breach of contract, with the object of coercing the offending party to perform the contract, it is the case of penalty.

5.2.6 Cost of Suit

The aggrieved party is entitled, in addition to the damages, to get the costs of getting the decree for damages from the defaulter party. The cost of suit for damages is in the discretion of the court.

5.3 Suit upon Quantum Merit

The third remedy for a breach of contract available to an injured party against the guilty party is to file a suit upon quantum merit. The phrase quantum merit literally means as much as is earned or in proportion to the work done. A right to use upon quantum merit usually arises where after part performance of the contract by one party, there is breach of contract or the contract is discovered void or becomes void. This remedy may be availed of either without claiming damages (i.e. claiming reasonable compensation only for work done) or in addition to claiming damages for breach (i.e. claiming reasonable compensation for part performance and damages for the remaining unperformed part) The claim on Quantum Merit arises in following cases Where work has been done in pursuance to the contract, which has been discharged by the default, no matter whether the contract is divisible or indivisible. Note that in both the above cases the contract was wrongfully terminated by the defendant, and both damages as well as quantum merit have been allowed. Where work has been done in pursuance of a contract which is discovered void or becomes void provided the contract is divisible. When the person enjoys benefit of non-gratuitous act although there exist no express agreement between the two parties. o One of such cases is provided in Section 70 which lays down that when services are rendered or goods are supplied by person (i) without any intention of doing so gratuitously, and (ii) the benefit of the same are enjoyed by other party, the latter must compensate the former or restore the thing so delivered. When an indivisible contract is completely but badly performed. o When an indivisible contract for a lump-sum is completely performed, but badly, the person who has performed can claim the lump-sum less deduction for bad work. 14

o e.g. A agreed to decorate Bs flat for a lump-sum of Rs. 750. A did the work but B complained for faulty workmanship. It Cost B Rs. 204 to remedy the defect. Held, A could recover from B Rs. 750 less Rs. 204.

5.4 Suit for Specific Performance

There are other remedies in a contract suit besides damages. The main one is Specific Performance. Specific performance means the actual carrying out of the contract as agreed. Under certain circumstances an aggrieved party may file a suit for specific performance, i.e. for a decree by the court directing the defendant to actually perform the promise that he has made. Where damages are not an adequate remedy, the court may direct the party in breach to carryout his promise according to the term of the contract. Some of the instances where court may direct specific performance are A contract for the sale of a specific house A contract for the sale of a specific rare (antique) article. Any other article for which monetary compensation is not enough because the injured party will not be able to get an exact substitute in the market.

However, specific performance may not be granted in case Where monetary compensation is an adequate relief. The contract is of personal nature e.g. a contract to paint a picture.(in such case injection is granted in place of specific performance) Where the court cannot supervise the actual execution of contract e.g. a building construction contract.

5.5 Suit for an Injunction

Injunction is an order of a court restraining a person from doing a particular act where a party is in breach of a negative term of contract i.e. where he does something which he promised not to do. The court may by issuing an order, prohibit him from doing so.

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6. DISCHARGE OF CONTRACT
When the rights and obligations arising out of a contract are extinguished, the contract is said to be discharged. A contract may be discharged in any of the following ways according to law: 1. 2. 3. 4. 5. 6. By Performance - Actual or Attempted By Mutual Consent or Agreement By Subsequent or Supervening Impossibility or Illegality By Lapse of Time By Operation of Law By Breach of Contract

6.1 Discharge by Performance

When a contract is duly discharged by both the parties, contract comes to a happy ending and nothing more remains, it is discharge or termination of contract by due performance. But if one party to the contract alone performs his performance he lone is discharged and gets a right of action against the other party who is guilty of breach. Performance of contract is the principal and most usual mode of discharge of a contract. Performance may be Actual or Attempted.

6.1.1 Actual Performance

All the parties to the contract fulfill their obligation within the time and manner prescribed.

6.1.2 Attempted Performance or Tender

Sometimes it so happens that the promisor offers to perform his obligation under the contract at the proper time and place but the promisee does not accept the performance. This is known as Attempted Performance or Tender. Thus a tender of performance is equivalent to actual performance. It excuses the promisor from further performance and entitles him to sue the promisee for the breach of contract. A valid tender thus discharges the contract.

6.2 Discharge by Mutual Consent or Agreement

Since a contract is created by means of an agreement, it may also be discharged by another agreement between the same parties in any of the following manner:

6.2.1 Novation
Novation occurs when a new contract is substituted for an existing contract, either between the same parties or between different parties, the consideration mutually being the discharge of old contract. However, novation cannot be compulsory, it can only be by mutual consent of all parties. The new contract must be valid and enforceable, else the original contract revives. (Mahabir Prasad vs Satya Narain 1963,AIR, Patna) 16

6.2.2 Alteration
Alteration of a contract means change in one or more material items of contract such as change in amount of money to be paid, change in rate of interest etc. If such alteration in written contract is done by mutual consent, the original contract is discharged and in its place comes new altered contract. Immaterial alteration such as correcting a clerical error in figures or spelling of the name has no effect on the validity of the contract and does not amount to alteration in technical sense. The difference between Novation and Alteration is that in Novation there may be change in parties also while in case of Alteration parties remain the same, only the terms of contract are altered.

6.2.3 Rescission
A contract may be discharged before the date of performance, by agreement between the parties to the effect that it shall no longer bind them, and the parties are released from their obligation arising out of the contract. Rescission is thus mutual cancellation of the contract.

6.2.4 Remission
Remission may be defined as the acceptance of a lesser sum than what was contracted for or a lesser fulfillment of promise made.

6.3 Discharge by Subsequent / Supervening Impossibility or Illegality

6.3.1 Impossibility at the Time of Contract
E.g. an agreement to discover treasure by magic, to make alive a dead man. In such case there is no contract to terminate because it being an agreement void ab-initio by virtue of Section 56 Para 1.

6.3.2 Subsequent Impossibility

In this case the impossibility supervenes after the contract has been made, which is material to discharge of contract. 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 (Sec 56 Para 2)

6.3.3 Cases - Application of Supervening Impossibility

Destruction of Subject Matter When the subject matter of the contract, subsequent to its formation, is destroyed without the fault of promisor or promisee, the contract is discharged. Note that it is only when specific property or goods which are destroyed cannot be regained. 17

Failure of Ultimate Purpose Where the ultimate purpose for which the contract was entered into fails, the contract is discharged, although there is no destruction of any property affected by contract and the performance of contract remains possible in literate sense. Death or Personal Incapacity of Promisor Where the performance of contract depends upon the personal skill or qualification or existence of a given person, the contract is discharged on the illness or incapacity or death of that person. Change of Law A subsequent change in law may render the contract illegal and in such cases the contract is deemed discharged. Outbreak of War All contracts entered into with an alien enemy during the war are illegal and void abinitio. Contracts entered before the outbreak of war are suspended during the war and may be revived after the war is over provided they have not already become time barred. It may be noted that if the war is declared between the countries of contracting parties then only the contract is suspended during war.

6.3.4 Cases Not Covered by Supervening Impossibility

Difficulty of Performance Increased or unexpected difficulty and expense do not, as a rule, excuse from performance. Commercial Impossibility When in a transaction profits dwindle to a very low level or actual loss becomes certain, it is said that the performance of the contract has become commercially impossible. Such a situation may arise on account of higher price of raw material or increase in wage bill etc. Commercial impossibility also does not discharge a contract. Impossibility Due To Default of Third Person The doctrine of supervening impossibility does not cover cases where contract could not be performed because of impossibility created by the failure of a third person on whose work the promisor relied. Strikes and Lock Outs A strike by the workmen or a lockout by the employer also does not excuse performance because the former is manageable (as labor is available otherwise) and the later is self induced. Failure of One of the Object When a contract is entered into for several objects, the failure of one of them does not discharge the contract.

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6.4 Discharge by Lapse of Time

The Limitation Act lays down that in case of breach of contract legal action should be taken within specified period, called the period of limitation, otherwise the promisee is debarred from instituting a suit in a court of law and the contract stands discharged. For example, the period for limitation for simple contracts is 3 years under the Limitation Act, and therefore on default by a debtor if creditor does not file a suit of recovery against him within 3 years of default, the debt becomes time barred on expiry of 3 years and the creditor will be deprived of his remedy at law. This in effect implies discharge of contract. Again, where time is of essence in a contract, if the contract is not performed at the fixed time, the contract comes to an end, and the party not at fault need not perform his obligation and may sue the other party for damages.

6.5 Discharge by Operation of Law

A contract terminates by operation of Law in following cases:

6.5.1 Death
Where the contract is of personal nature, the death of a promisor discharges the contract. In other contracts the rights and liabilities of deceased person pass on to legal representatives.

6.5.2 Insolvency
A contract is discharged by the insolvency of one of the parties to it when an Insolvency Court pass on order of discharge exonerating the insolvent from liabilities on debts incurred prior to his adjudication.

6.5.3 Merger
Where the inferior right contract merges into a superior right contract, the former stands discharged automatically.

6.5.4 Unauthorized Material Alteration

A material alteration made in a written document or contract by one party without the consent of other, will make the whole of the contract void. Thus where the amount of money to be received is altered or an additional signature is forged on a promissory note by the creditor, he cannot bring a suit on it and the pro-note cannot be enforced against the debtor even in its original shape. The effect of making such an alteration is exactly the same as that of cancelling the contract. However, the document, though altered, can be used as proof of the transaction and the creditor may be allowed to claim refund of money actually advanced by him.

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6.6 Discharge by Breach of Contract

Breach of contract by a party thereto is also a method of discharge of a contract, because breach also brings to an end the obligations created by a contract on the part of each of the parties. However, the aggrieved party i.e. the party not at fault can sue for damages for breach of contract as per law, but the contract as such stands terminated. Following are types of breach of contract.

6.6.1 Anticipatory Breach

An anticipatory breach of contract is a breach of contract occurring before the time fixed for performance has arrived. It may take place in TWO ways: Expressly by words spoken or written: Here a party to the contract communicates to the other party, before the due date of performance, his intention not to perform. Impliedly by conduct of one of the parties: Here a party by his own voluntarily act disables himself from performing the contract.

6.6.2 Actual Breach

Actual breach may also discharge a contract. It occurs when a party fails to perform his obligation upon the date fixed for performance by the contract. It is important to note that there cannot be Actual breach of contract by reason of non-performance so long as time of performance has yet not arrived. Actual Breach entitles the party not in default, to elect to treat the contract as discharged and to sue the party at fault for damages for breach of contract. *Effect of an Anticipatory Breach* Where there is an anticipatory breach of contract, the promisee is excused from performance or from further performance. Further it gives the option to the promisee (the aggrieved party) whereby: He may either treat the contract as rescinded and sue the other party for damages for breach of contract immediately without waiting until the due date of performance. He may elect not to rescind but treat the contract as still operative, and wait for the time of performance and then hold the other party responsible for the consequences of non performance . But in that case, he will keep the contract alive for the benefit of other party as well as his own, and the guilty party, if he so decides on reconsideration, may still perform his part of contract and can also take advantage of any supervening impossibility which may have the effect of discharge of contract.

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7. SAMPLE COOPERATIVE RESEARCH AGREEMENT

This Agreement is entered into by _____________________ a research organization established under _____________ laws (hereinafter INSTITUTE), having its principle office at ____________________________________________________________; and _______________________________________ a ________________ organized under the laws of ___________________________ (hereinafter COOPERATOR I), having its principle office at ___________________; and _________________________________ a ____________________ organized under the laws of ___________________________ (hereinafter COLLABORATOR II), having its principle office at ______________________________________. Witnesseth that: WHEREAS, researchers at INSTITUTE, COLLABORATOR I and COLLABORATOR II are collaborating and continue to collaborate on research pertaining to _______________ and, WHEREAS, certain intellectual property including patents and patent applications and plant varieties may be derived from this collaborative research effort; and, WHEREAS, the researchers agreed at the onset of the that the Joint Project (as defined in Article I) would be a joint effort and that the intellectual property or any other benefits that might be derived from the collaboration would be commonly owned by the researchers and their respective institutions; and, WHEREAS, INSTITUTE, COLLABORATOR I and COLLABORATOR II wish to provide for the handling and division of the patenting costs and the monies received from any option to license or license under said patent rights, NOW THEREFORE, in consideration of the mutual benefits to be derived hereunder, the Parties agree as follows: Article I Definitions 1.1 Intellectual Property shall mean patents, copyrights, trademarks, plant variety certification and any other forms of intellectual property protectable under the country's law. 1.2 Joint Ownership shall mean two or more of the Parties have employees that are coinventors to Intellectual Property. 1.3 Joint Project shall mean a collaborative research program between Parties involving researchers __________________, ___________________, ______________________, and ______________________ and such other researchers who may participate in this project titled________________________________ _________________________________________________________.

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1.4 Party shall mean INSTITUTE, COLLABORATOR I and COLLABORATOR II individually or collectively they shall be referred to as Parties. Article II Proprietary Rights 5.1 Title to Intellectual Property will be with the originating Party unless there is Joint Ownership 5.2 Handling of Intellectual Property 5.2.1 INSTITUTE will be responsible for thepatenting and licensing of Intellectual Property with Joint Ownership. There will be joint assignment to Intellectual Property with Joint Ownership to the contributing Parties. Intellectual Property made solely by one Party will owned and controlled by that Party. Controlled means said Party will be in control of all decisions concerning patenting and licensing, and said Party will retain all royalties resulting from the licensing. In all instances, counsel chosen to prosecute patent application, after or plant variety certification shall be made aware of the nature of the Joint Project and shall be charged with determining inventorship in accordance with law soliciting facts, if any, from each Party.

5.2.2

5.2.3

5.3 Licensing and Use 5.3.1 Licensing of jointly developed invention shall only be by mutual agreement of Parties. INSTITUTE shall take the lead in identifying potential licensees and negotiating license agreement(s) following consultations with the other two Parties. Inventions developed by individual Parties under the Joint Project shall be available to the other two institutions through a non-exclusive, royalty-free license to use such inventions for internal, non-commercial purposes.

5.3.2

5.4 Other institutions or parties may be added to the Joint Project via a subcontract or some other mechanism for the purpose of facilitating the research. INSTITUTE, COLLABORATOR I, and COLLABORATOR II will remain the primary Parties for the determination of patenting and Intellectual Property ownership and the other institutions which may be added to the Joint Project shall be secondary in the decision-making process pertaining to proprietary rights. Article III Protection Expenses 3.1 National and foreign patent applications and plant variety certification applications for Joint Ownership shall be filed, prosecuted and enforced as mutually agreed upon between the Parties and enforced as mutually agreed upon between the Parties, and the Parties will share the expenses thereof a provided in Article III 3.2 hereof. 3.2 Unless agreed otherwise, all legal costs and fees incurred after the Effective Date of this Agreement will be shared equally by the institutions contributing to an invention of new plant variety, except that if any Party objects to the filing or continued prosecution of an application or enforcement of a patent or certificate in a particular 22

country (or countries), the other Party (Parties) may proceed at its (their) own expense. If any Party (Parties) proceeds on its (their) own, the Party declining to proceed shall have no rights or interest in any patent or plant variety certification rights for said country (countries) in which it declines to proceed. Article IV Income Distribution For Joint Ownership Intellectual Property the Parties agree to share equally all income received from licensing and commercialization of the Intellectual Property or any other technology that might result from the present and future collaboration on the Joint Project. In the event gross royalties do not cover the accrued legal costs expended by any Party with respect to jointly developed Intellectual Property, no Party shall be held responsible for reimbursing the other Party (Parties). Article V Assignability None of the Parties shall assign or transfer any of the rights under this Agreement without the prior written approval of the other Parties which such approval shall not be unreasonably withheld. Article VI Future Issues 6.1 If any disagreements arise, the Parties will use best efforts to negotiate to resolve all differences. The collaboration of Parties and their researchers is paramount. 6.2 This Agreement shall terminate with the expiration of the last to expire patents and/or plant variety certifications developed under this Joint Project, or on abandonment of all patent or plant variety applications developed under this Joint Project, provided such abandonment is by mutual consent. 6.3 This Agreement may be amended by mutual agreement of the Parties. Such amendments shall not be binding unless they are in writing and signed by authorized representatives of each Party Article VII Miscellaneous 7.1 This construction, validity, performance and effect of this entire Agreement shall be governed by the laws of ________________. 7.2 This Agreement sets forth the entire agreement and understanding between the Parties as to the subject matter thereof and merges al prior discussions between them. 7.3 If any provision of this Agreement shall be held to be invalid, such invalidity shall not affect any other provisions of this Agreement, but the remainder hereof shall be effective as though such invalid provisions had not been contained herein. 7.4 Each Party shall require all of its researchers conducting research under the Joint Project to assign their rights to Intellectual Property conceived during the term of the Joint Project to the appropriate Party. 7.5 The researchers of each Party shall continue to be employees of that Party and shall not be considered to be employees of any other Party

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7.6 This Agreement may be executed in any number of counterparts, any one of which shall be deemed to be the original without the production of the others. In witness whereof, the Parties hereto have caused the Agreement to be executed in triplicate by their duly authorized representatives. The Effective Date of this Agreement is _____________________, 20 ___. INSTITUTE By: _______________________________ Name: _____________________________ Title: ______________________________ COLLABORATOR II By: ________________________________ Name: _____________________________ Title: ______________________________ COLLABORATOR I By: ___________________________ Name: _________________________ Title: __________________________

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REFERENCES
Textbooks Books Patrick Atiyah, The Rise and Fall of Freedom of Contract (1979) Clarendon Press ISBN 0198253427 C Mitchell and P Mitchell (eds), Landmark Cases in the Law of Contract (Oxford, Hart Publishing, 2008) M.C. Khuchhel, Mercantile Law (9th Edition) PS Atiyah, An Introduction to the Law of Contract (Clarendon, Oxford 2000) H Collins, Contract Law in Context (CUP 2004) E McKendrick, Contract Law (8th edn Palgrave 2009) J Hilliard and J OSullivan, The Law of Contract (2nd edn OUP 2006)

Cases and Materials A Burrows, A Casebook on Contract (2nd edn Hart, Oxford 2009) Jill Poole, Casebook on Contract Law (2006) 8th Ed., Oxford University Press Ewan McKendrick, Contract Law - Text, Cases and Materials (2005) Oxford University Press ISBN 0-19-927480-0

Articles Hans Wehberg, Pacta Sunt Servanda (Oct., 1959) The American Journal of International Law, Vol. 53, No. 4, p. 775. PS Atiyah, 'Consideration: A Restatement' in Essays on Contract (1986) p. 195, Oxford University Press Lord Steyn, 'Contract Law: Fulfilling the Reasonable Expectations of Honest Men' (1997) 113 Law Quarterly Review

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