UNIT I

Introduction

The Law of Contract constitutes the most important branch of mercantile or commercial law.
It affects everybody, more so, trade, commerce and industry. It may be said that the contract is
the foundation of the civilized world. The law relating to contract is governed by the Indian
Contract Act, 1872 .The preamble to the Act says that it is an Act "to define and amend certain
parts of the law relating to contract". It extends to the whole of India except the State of Jammu
and Kashmir.

Definition and Essentials of CONTRACT

A Contract is an agreement enforceable by law. An agreement is enforceable by law, if it

is made by the free consent of the parties who are competent to contract and the agreement
is made with a lawful object and is for a lawful consideration, and is not hereby expressly
declared to be void. The agreement which is not enforceable by law is not called contract.
Eg. An agreement to sell a radio set may be a contract, but an agreement to go to see a
movie may be a mere agreement not enforceable by law.
Agreement + Enforceability at law = Contract
“All agreements are not contracts but all contracts are agreements”

Definition of AGREEMENT

According to S. 2 (e) “Every promise and every set of promises, forming the consideration
for each other, is an agreement”. In an agreement there is a promise from both sides. Eg. A
promises to deliver his watch to B and in return B Promises to pay a sum of Rs. 2,000 to A.
There is said to be an agreement between A and B. A promise is the result of an offer by
one person and its acceptance by the other. Section 2(b) of the Act, defines “promise” as
“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.”
S.10 What agreements are contracts?

All agreements are contracts if they are made

• Between Two persons
 • Free consent of parties
Two or more persons are said to consent when they agree upon the same thing in the
same sense. Consent is free when it is not caused by mistake, misrepresentation, undue
influence, fraud or coercion. When consent is caused by any of above said elements, the
contract is voidable at the option of the party whose consent was so caused.
• Competent to contract
Competent to contract means the legal ability of a person to enter into a valid contract.
Every person is competent to contract who (a) is of the age of majority according to the
law to which he is subject and (b) is of sound mind and (c) is not otherwise disqualified
from contracting by any law to which he is subject.
• Lawful consideration and lawful object
An agreement where the object or the consideration is unlawful is void. Object or
consideration is unlawful if it is forbidden by law, it defeats the provisions of law; or is
fraudulent, or involves injury to the person or property of another; or is immoral; or is
opposed to public policy. Besides the above said agreements, certain agreements have
been expressly declared to be void by the Contract Act such as – wagering agreements,
agreement with uncertain meaning, agreements where consideration is unlawful in part
etc.
• Are not hereby expressly declared to be void.
The agreement entered into must not be which the law declares to be either illegal or
void. An illegal agreement is an agreement expressly or impliedly prohibited by law. A
void agreement is one without any legal effects.

Different types of agreements

Void Agreements

An agreement not enforceable by law is said to be void. For eg. an agreement by a minor
has been held to be void. Section 24 to 30 of the Indian Contract Act, 1872, makes
specific mention of agreements which are void. Those agreements include an agreement
 without consideration, an agreement, in restraint of marriage, and an agreement in
restraint of trade.
Voidable Contracts

An agreement which is enforceable by law at the option of one or more of the parties
thereto, but not at the option of the other, is a voidable contract. Thus, a voidable
contract is one which could be avoided by one of the parties to the contract at his
option. For eg, when the consent of the party to a contract has been obtained by
coercion, undue influence, fraud and misrepresentation, the contract is voidable at the
option of the party whose consent has been so obtained.
Difference between Void Agreement and Voidable Contract
1. A voidable contract is voidable at the option of one of the parties thereto. But a void
agreement cannot be enforced by any one of the parties thereto.

2. The defect in the case of voidable contract is curable and may be condoned, whereas a void
agreement is void ab initio, and its defects are not curable.

3. A voidable contract does not become void unless the party at whose option it is voidable
repudiates it. But a void agreement is void ab initio.

4. A voidable contract implies a contract, in which the consent of one of the parties to contract is
not free, whereas a void agreement denotes an agreement, which does not fulfill the essentials of
a valid contract.

5. In case of a voidable contract, a person is entitled to compensation for loss or damages

suffered by him on account of the non-performance of contract. But in a void agreement, as it is
unenforceable at law there does not arise any question of compensation due to the non-
performance of the agreement.

Unlawful Agreements

There are certain agreements which are “unlawful” in the sense that the law forbid the very
act, the doing of which is contemplated by the agreement. For eg, an agreement to commit a
crime or a tort. To distinguish an unlawful agreement from other void agreement, it is stated
that while in case of void agreement a collateral transaction may not also be avoid, but in case of
an unlawful agreement, the collateral transaction is held to be void. For eg, A gives money to B
to enable him to pay his wagering debt. The wager is the main transaction which is void, but loan
given by A is subsidiary to it, which is not void and A can recover his money from B. On the
other hand, where A gives loan to B to smuggle goods. Smuggling is the main transaction and
loan is subsidiary to it. But, loan transaction is also said to be tainted with the same illegality and
A will not be able to recover his money.

Proposal or Offer

The term “proposal” has been defined in Section 2(a) of the act, as “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”. For
eg. A’s willingness to sell his radio set to B for Rs. 500 with intention to consent of B. But if a
statement is made without any intention to obtain the assent of the other party thereto, that
cannot be termed as proposal.

Elements of proposal

•Expression of willingness to do or abstain from doing something

•Made with the object of obtaining assent of the other

Thus the person making the proposal is called the ‘proposer’, or ‘offeror’ or ‘promisor’ and the
person to whom the proposal is made is called as the ‘proposee’, or ‘offeree’, or ‘promisee’.
Offers must be communicated

Section 2(a) of the Act explains that a person is said to make a proposal “when he signifies to
another person his willingness to do or to abstain from doing something”. The emphasis, here, is
upon the requirement that the willingness to make a proposal should be “signified”. The terms
signify means to or communicate to make known. It thus requires that the offer must be
communicated to the other person.

Express or Implied offer

 Offer is either express or implied. When the offer is made by express communication then the
offer is said to be an express offer. The express offer can be either in words or in written
format. Whereas when the offer is not communicated expressly but communicated by
conduct or by the circumstances of the case, the offer is called an implied offer. For eg. A
says to B that he will sell his bike to B for Rs.30, 000, it is an express offer. For eg, a bid at
an auction is an implied offer.

Completion of Communication

S. 4 The communication of a proposal is complete when it comes to the knowledge of the

person to whom it is made. An offer cannot be accepted unless and until it has been brought to
the knowledge of the person to whom it is made. For eg. A cannot be said to make an offer to B
unless A brings the offer to the knowledge of B. Thus, acting in ignorance of an offer does not
amount to acceptance of the offer. In Lalman Shukla v. Gauri Dutt, The plaintiff was in
defendants service as a servant. The defendant’s nephew absconded and the plaintiff went to find
the missing boy. In the plaintiff’s absence, the defendant issued handbills, offering a reward of
Rs 501 to anyone who might find the boy. The plaintiff traced him and claimed the reward. The
plaintiff did not know of the handbills when he found the boy. The court held that the plaintiff
was not entitled to a reward. If the person has the knowledge of the offer, his acting in
accordance with the terms thereof amounts to the acceptance of the same. In such a case, it is
immaterial that at the time of accepting the offer, the acceptor does not intend to claim the
reward mentioned in the offer.

Intention to Contract

In order that an offer, after acceptance, can result in valid contract, it is necessary that the
offer should be made with an intention to create legal relationship. Promise in case of social
engagements is generally without an intention to create legal relationships. Such an agreement,
therefore, cannot be considered to be a contract. For eg. An agreement to go for movies, for a
walk, to play some game, cannot be enforced in a court of law. The test to know the intention of
the parties is objective and subjective, merely because the promisor contends that there was no
intention to crate legal obligation would not exempt him from the liability. In Balfour v Balfour,
Mr. Balflour who was employed on a government job in Ceylon, went to England with his wife
on leave. For health reasons the wife was unable to accompany the husband again to Ceylon. The
husband promised to pay 30 euros per month to his wife until she rejoined him in Ceylon. The
husband failed to pay her the said amount hence the wife sued him for the amount. The court
held that the husband was not liable as there was no intention to create a legal relationship.
Intention of the parties to be gathered from the terms of the contract and surrounding
circumstances. Generally in all social matters it is presumed there is no intention to create legal
relation. But in business matters it is presumed to intend such relation. In Jones v. Padavatton,
A divorced daughter lived in Washington with her son who employed on attractive terms and
her mother living in Trinidad, who wished to live near the lady as she was attached to grandson
so she persuaded the daughter much against her will to leave the job, take legal education in
England & finally come back to Trinidad as practicing lawyer and mother agreed to pay all
expenses, purchased a house in England, part of it was rented out & a part was allowed to her
daughter and for 5 long years daughter could not complete law, in the meantime she got
remarried and differences arose between mother & daughter and mother stopped payments &also
commenced eviction proceedings. It was held that there was no intention to create a legal
relationship and gave possession to the mother.

Offer may be general or specific

When the offer is made to a specific or ascertained person, it is known as specific offer. It
can be only accepted by the person to whom the offer is made or to the person duly
authorized by him. When the same is made to any particular person but to the public at large,
it is known as general offer. A general offer can be accepted by any person. Illustration ‘A’
advertises in the newspaper that whosoever finds his missing son would be rewarded with 2
lakh. ‘B’ reads it and after finding the boy, he calls ‘A’ to inform about his missing son. Now
‘A’ is entitled to pay 2 lakh to ‘B’ for his reward. In Carlill v. Carbolic Smoke ball Co., The
smoke ball company offered by advertisement a reward of $100 as reward to anyone who
contacted influenza after having used the Smoke Ball with the printed directions. Mrs.Carlill
(plaintiff) relying on the advertisement purchased a smoke ball from a chemist, used the
same in accordance with the directions of the defendants, but still caught influenza. She sued
the defendant to claim the reward of $100 advertised by them. There may be general offer
 and acceptance of the general offer may not be communicated. By fulfilling the conditions of
such offer the offeree is said to accept the offer.

Offer and Invitation to offer (treat)

A proposal or an offer has to be distinguished from an invitation to offer or treat. A person
may not offer to sell his goods, but makes some statement or give some information with a view
to inviting others to make offers on that basis. For eg. Displaying goods or dress or books in
window of the shop. This is an invitation to offer. It is on the discretion of the shopkeeper if he
wants to sell his article or not. An invitation to offer is not the final willingness but the interest of
the party to invite the public to offer him. In Harris v. Nickerson, The defendant advertised a
sale by auction. The plaintiff travelled to the advertised place of auction to find that the
defendant had cancelled the auction sale. He brought an action against the defendant to recover
the expenses of his travel. It was held that he was not entitled to the same as there was as yet no
contract between the two parties, which could make the defendant liable.

DEFINITION OF ‘ACCEPTANCE’

S. 2(b) When the person to whom the proposal is made signifies his assent thereto, the
offer is said to be accepted. Thus the proposal when accepted becomes a promise.” An offer can
be revoked before it is accepted. As specified in the definition, if the offer is accepted
unconditionally by the offeree to whom the request is made, it will amount to acceptance.

Acceptance may be express or implied

where acceptance is made with words spoken or written, it is an express acceptance, and if
acceptance is made otherwise than in words, it is implied. What is necessary is that there should
be some external manifestation of acceptance.

Who Can Accept?

Offers can either be made out to people in General or to a Specific counter-party If it is
a General Offer it can be accepted by anybody. Who performs according to general offers is said
to be accepted the offer and contract is created. If it is a Specific Offer it can ONLY be accepted
by that Specific Counter-party to whom the offer is made.
Effect of Acceptance

A contract is created only after an offer is accepted. Before the acceptance is made neither
party is bound thereby. At that stage offerror is free to revoke or withdraw his offer, and the
offeree is free not to accept the offer or to reject the same. After the offer has been accepted it
become a promise which, if other conditions of a valid contract are satisfied, bind both the
parties to promise. After acceptance, each party becomes legally bound by the promise made by
him through the medium of offer and acceptance of it.
Essential of valid acceptance

1. Acceptance should be communicated by the offeree to the offeror.

2. Acceptance should be absolute and unqualified.
3. Acceptance should be made in some usual and reasonable manner, unless the
proposal prescribes the manner of acceptance.
4. Acceptance should be made while the offer is still subsisting.

Acceptance should be communicated

The offeree must communicate the acceptance. The communication may be express or
implied. Sometimes the conduct of a person might indicate his assent. For eg. when a passenger
boards a bus and travels thereby, he impliedly assents to pay the necessary fare. In order to create
a contract, acceptance of the offer and intimation of acceptance by some external manifestation,
which the law regards as sufficient is necessary. For a valid contract the acceptance must be
communicated and moreover, such communication should be made to the offeror. In Felthouse
v. Bindley, Felthouse wrote a letter to his nephew offering to buy his horse for Rs. 10,000. In the
letter containing the offer it was also mentioned “If I hear no more about the horse, I consider the
horse mine at Rs. 10,000.” The nephew did not reply this letter. He, however, told his auctioneer,
Bindely, that he wanted to reserve this horse for his uncle and, therefore, desired that the horse
be not sold by the auctioneer. The auctioneer disposed of the horse by mistake. Felthouse sued
Bindely for the tort of conversion on the plea that Felthouse had become the owner of the horse
which Bindely had disposed of. HELD: It was clear that the nephew intended to sell the horse to
his uncle but it was not communicated to his uncle, hence it was not a valid acceptance.
Principles:
 1. Acceptance of the offer shall be communicated to the offeror himself.

2. communication to a stranger is no acceptance

3. Offeror cannot impose the burden of refusal.

Acceptance shall be communicated to the offeror himself.

• Powell v. Lee , Powell was one of the candidates for the post of headmaster of a school.
The Board of Managers passed a resolution selecting him for the post. No communication
about this decision was made to Powell by the Board. One of the member of the board
who had not been authorized to communicate this decision, acting in his individual
capacity, informed Powell about his selection for the post. The board of managers met
again and decided to cancel the appointment of Powell and appoint another candidate.
Powell sued for the breach of contract. It was held that communication of acceptance was
not valid. It was almost like overhearing. Communication shall be made by
offeree/acceptor himself.

Mode of Communication

Mode of communication
S. 7. Acceptance must be absolute. In order to convert a proposal into a promise, the acceptance
must-
(1) be absolute and unqualified;

(2) be expressed in some usual and reasonable manner, unless the proposal prescribes the
manner in which it is to be accepted.

If the proposal prescribes a manner in which it is to be accepted, and the acceptance should be
made in such manner, otherwise it is not valid acceptance.
Completion of Communication

S.4 Communication when complete. –

The communication of an acceptance is complete, -

 • As against the proposer, when it is put in a course of transmission to him, so as to be out
of the power of the acceptor;

• As against the acceptor, when it comes to the, knowledge, of the proposer.

Eg. When B accepts A’s proposal sent by post, acceptance is complete-

• As against A, when the letter is posted

• As against B, when the letter is received by A ( there is presumption that letter reaches)

Absolute and Unqualified Acceptance

Acceptance must be unconditional and absolute. There cannot be conditional acceptance that
would amount to a counteroffer which nullifies the original offer. For eg. A offers to sell his cycle to
B for 2000/-. B says he accepts if A will sell it for 1500/-. This does not amount to the offer being
accepted, it will count as a counteroffer. Also, it must be expressed in a prescribed manner. If no
such prescribed manner is described then it must be expressed in the normal and reasonable manner,
i.e. as it would be in the normal course of business. Implied acceptance can also be given through
some conduct, act, etc. However, the law does not allow silence to be a form of acceptance. So the
offeror cannot say if no answer is received the offer will be deemed as accepted. In Hyde v.
Wrench, There was an offer made by A and B for the sale of a Farm for 1000 pounds. B rejected
this offer and said that he will pay only 950 pounds to which A did not agree. Thereupon B said
that he was willing to pay 1,000 pounds to which also A did not agree. B sued A and contended
that there was a contract by which by which A was bound. It was held that B had once rejected
A’s offer by his counter offer to pay 950 pounds and this made the original offer to lapse, and
therefore, no contract had resulted in this case.

Acceptance should be expressed in usual/ prescribed manner

According to S.7 (2), the acceptance must be “expressed in some usual or reasonable manner,
unless the proposal prescribed the manner in which it is to be accepted.” It means that if the manner
of acceptance has been prescribed by the proposal, the acceptance has to be made in that prescribed
manner; otherwise the same may be made in some usual or reasonable manner.

Usual or Reasonable manner

 Usual or Reasonable manner of acceptance means the manner which is usually adopted in a
particular kind of transaction according to the usage or custom of trade. Acceptance by post,
telegram, telephone, or through personal messenger may be considered to be usual manner of
acceptance.

Prescribed manner

If the proposal prescribes any particular manner of acceptance, the acceptance must be made in that
manner. The manner of acceptance may include the requirement of fulfillment of certain conditions,
such as the payment of an advance. If such conditions are not fulfilled, there does not arise a valid
contract.

Acceptance should be made while the offer is still subsisting

Already it has been noted that the offeror is free to withdraw the offer, or the offer is revoked
under various circumstances mentioned in S.6. After the offer has been withdrawn or has lapsed,
there is nothing which can be accepted. It is, therefore, necessary that the acceptance should be
made while the offer is still alive and subsisting. Acceptance after the lapse of the offer cannot give
rise to a contract. Similarly, the offer is deemed to have ended by rejection of the original offer or a
counter offer.

Revocation of Offer and Acceptance

Revocation of Offer

It is only after the acceptance of an offer that there arises a contract and then both the parties
become bound by their respective promises. Before the offer has been accepted, it can be revoked.
After the offer has been accepted it ripens into a contract and then it cannot be revoked.

Modes of revocation of offer

S.6 mentions various modes of revocation of offer

• Notice of Revocation

• Lapse of time,
 • Failure to accept condition precedent

• Death or insanity of offeror

Revocation by Notice

It may be revoked at any time before it is accepted. The proposal may be revoked by the
communication of notice of revocation which has to be communicated by the proposer or his agent
and not by anybody else. In India, the notice of revocation has to be communicated by the proposer
only, whereas in England the offer stands revoked even though the offeree comes to know about the
revocation of the offer through some other source and not by a notice by the offeror himself.

By lapse of time

A proposal is revoked by the lapse of the time prescribed in such proposal for its acceptance, or,
if no time is prescribed, by the lapse of a reasonable time. Sometimes the party may expressly fix
the time up to which the offer will remain open. An offeror, who has mentioned that his offer is
open until a particular time, is not debarred from revoking the offer earlier than that time, if he so
likes. For eg. if A has made an offer to sell his property to B for certain price, also stating that the
offer is open till 12th June, 9:00 a.m. the offer would be revoked on 11th June if on that date A
disposes of the property to somebody else with notice to B. An attempt on part of B to accept this
offer on 12th June (before 9:00 a.m.) will be of no avail as the offer has already been revoked.
Similarly, expressly rejecting an offer even before the lapse of a fixed or reasonable time makes
the offer to lapse.

By failure to fulfill a condition precedent

When the offer is subject to some conditions precedent, such a condition has got to be
fulfilled by the acceptor before making the acceptance. If the acceptor fails to fulfill the
condition precedent to acceptance, the offer stands revoked. For example, if the offer requires the
deposit of some earnest money, or the execution of some document, etc, this condition must be
fulfilled. In State of M.P. v. Goberdhan Nath, Tenders for the sale of certain goods were invited
subject to the condition that 25% amount was to be paid when the tender was accepted. A’s
tender was the highest and the same was accepted, but he failed to fulfill this condition. It was
held that no contract had arisen merely because A’s tender was accepted. Therefore, if A failed
to take the goods and pay for them, he could not be made liable for the breach of contract.

By death or insanity of the offeror

An offer is revoked by the death or insanity of the offeror, if the fact of his death or insanity
comes to the knowledge of the acceptor before acceptance. In India, the death or insanity of the
offeror does not automatically make the offer to lapse. The offer stands revoked if the fact of
death or insanity comes to the knowledge of the acceptor before acceptance. It means if the fact
of death or insanity has not come to the knowledge of the offeree while he accepts the offer, it is
valid acceptance giving rise to a contractual obligation. Under English Law, death of the offeror
revokes an offer even if acceptance is made in ignorance of the death.

Revocation of Acceptance
S.5 “An acceptance may be revoked at any time before the communication of the acceptance is
complete as against the acceptor, but not afterwards”. It has already been noted above that when the
contract is created through post, according to S.4, by the posting of the letter of acceptance:

• the proposer becomes bound when the letter of acceptance is posted to him,

• but the acceptor becomes bound when the letter of acceptance reaches the proposer.

Since the acceptor does not become bound immediately on posting his letter of acceptance, he is
free to revoke the acceptance by adopting speedier mode of communication, whereby his
communication of revocation of acceptance may reach earlier than his letter of acceptance.

Consideration

Introduction

Section 25 an agreement made without consideration is void subject to certain exceptions.

Consideration means something in return for the promise. It may be either some benefit
conferred on one party or some detriment suffered by the other. It is the price of the promise for
each party
Definition of Consideration

Section 2(d) of Indian Contract Act, 1872 defines consideration as “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 abstain from doing something, such act or abstinence or
promise is called a consideration for the promise”. The definition requires the following
essentials to be satisfied in order there is valid consideration-
1. Consideration to be given ‘at the desire of the promisor’.
2. Consideration to be given ‘by the promisee or any other person’.
3. Consideration may be past, present, future, in so far as the definition says that the
promise:
(i) Has done or abstained from doing, or
(ii) Does or abstains from doing, or
(iii) Promises to do or to abstain from doing, something.
4. There should be some act, abstinence or promise by the promise, which constitutes
consideration for the promise.
➢ Blackstone – “consideration is the recompense given by the party contracting to the
other”
➢ Cheshire and Fifoot – “a price for the promise”
➢ Sir Frederick Pollock- “consideration is the price for which the promise of the other is
bought and the promise is thus given for value is enforceable”.
➢ Patterson – “consideration means something which is of some value in the eye of law. It
may be some benefit to the plaintiff and some detriment to the defendant.”

Consideration at the desire of the promisor

Consideration must have been given at the desire of the promisor, rather than voluntarily or
at the instance of some third party. Example: A saves B’s goods from a fire without being asked
to do so. A cannot demand payment for his service. In Durga Prasad vs. Baldeo, Plaintiff
constructed few shops in a market at the instance of the collector of that place. Defendant
occupied one of the shops in the market. Money for the construction of the market was spent by
the plaintiff, the defendants, in consideration thereof, made a promise to pay to the plaintiff
commission on the articles sold in that market. Defendant failed to pay the promised
commission. Held: Consideration for promise to pay the commission for construction of the
market was not at the desire of the defendant but on the order of collector. Therefore, held that
since the consideration did not move at the desire of the defendant they were not liable in respect
of the promise made by them.
Subscription for a charitable purpose
A promise to contribute an amount for a charitable purpose may not be enforceable because
against this promise there may be no consideration. But a promise to pay subscription becomes
enforceable when definite steps have been taken on the faith of the promised subscription. In
Kedarnath v. Gorie Mohammed, There was a proposal to construct a Town Hall at Howrah
provided sufficient funds would be available by way of subscription. The defendant was one of
the subscribers, having promised to pay Rs.100 by signing his name in the subscription book for
the purpose. On the faith of the promised subscriptions, the plaintiff engaged a contractor for the
purpose of the construction and started a construction work. The defendant refused to pay his
subscription on the ground that he was not legally bound by his promise because there was no
consideration for the same. Held: That engaging a contractor and starting the construction on the
faith of the promise was sufficient consideration to enforce the promise and, therefore, the
defendant was bound to pay the amount promised by him.

Consideration by promisee or any other person

According to Indian law consideration may be given by the promisee or any other person.
In India there is a possibility that the consideration for the promise may move not from the
promisee but a third person, who is not a party to the contract. Thus, as long as there is a
consideration for a promise, it is immaterial who has furnished it. It may move from the
promisee or from any other person. In English law, consideration should move from
promisee only. In Chinnaya vs. Ramaya, A, an old lady, granted an estate to her daughter
(defendant) with a direction that the daughter should pay an annuity of Rs. 653/- to A’s
brother (plaintiff). On the same day the defendant made a promise to the plaintiff that she
would pay the annuity as directed by A. The defendant failed to pay the stipulated sum. In an
action against her by the plaintiff she contended that since the plaintiff himself had furnished
no consideration, The Madras High Court held that in this agreement between the defendant
 and plaintiff, the consideration has been furnished by the defendant mother and that is
enough consideration to enforce the promise between the plaintiff and the defendant.

Privity of Contract
The doctrine of privity of contract means that only those persons who are parties to the
contract can enforce the same; a stranger to the contract cannot enforce a contract even though
the contract may have been entered into for his benefit. Example: If in a contract between A and
B some benefit has been conferred upon X, X cannot file a suit to enforce the contract because A
and B are the only parties to the contract whereas X is only a stranger to the contract. In India a
person may not have himself given any consideration but he can enforce the contract if he is a
party to the contract, because according to the Indian Law consideration may be given either by
the promisee or even a third party. That does not affect the rule of privity of contract.

English Law
• Dutton Vs. Poole, A intended to sell his wood to make a provision for the marriage
expenses of his daughter. The defendant, A’s son requested A not to sell the wood and in
return made a promise to his father that he would pay 1,000 pounds to A’s daughter, The
father forebore to sell the wood but the defendant did not pay the promised amount to the
plaintiff. Held: It is true that the defendant, promised to father and father furnished
consideration for the promise. The plaintiff, was neither privy to the contract nor to the
consideration. But it was equally clear that the whole object of the agreement was to
provide a portion to the plaintiff. It would have been highly inequitable to allow the son
to keep the wood and yet to deprive his sister of her portion. He was accordingly liable. A
person, who is not a party to the contract but is intended to be the beneficiary under the
contract and is nearly related to the promisee, has a right of action.
• Tweddle Vs. Atkinson, After the marriage of the plaintiff, there was a contract in writing
between the plaintiff’s father and the girl’s father that each would pay a certain sum of
money to the plaintiff and the plaintiff would have a right to sue for such sums. Plaintiff
brought an action against girl’s father to recover the promised amount. Held: Plaintiff
could not sue for the same. As the plaintiff was both a stranger to the contract as well as
stranger to consideration and he could not enforce the claim. It laid foundation for
 doctrine of “privity of contract” which means that a contract is a contract between the
parties only and no third person can sue upon it even if it is made for his benefit.

Two fundamental principles

• Consideration must move from promisee and promisee only. If consideration moved
from any person other than promisee then promisee becomes stranger to the contract
as such he cannot enforce the contract
• A contract cannot be enforced by a person who is not a party to contract even though
it is made for his benefit. He is a stranger to contract and hence can claim no rights
under it.

Indian law – Privity of Contract

The rule that “privity of contract” is needed and a stranger to contract cannot bring an action
is equally applicable in India as in England. Even though under the Indian Contract Act the
definition of consideration is wider than in English Law, yet the common law principle is
generally applicable in India, with the effect, that only a party to the contract is entitled to
enforce the same. In Jamnadas vs. Ramavtar , A had mortgaged some property to X. A sold this
property to B. B having agreed with A to pay off the mortgage debt. X brought an action against
B to recover the mortgage money. It was held by the Privy Council that since there was no
contract between X and B, X could not enforce the contract to recover the amount from B.
Exceptions to Privity of Contract

Trust or Charge

While only a party to a contract who can sue on it and no such right is conferred on a third
party, it was also stated that “such a right may be conferred by way of property, as, for example,
under a trust.” The basis of an action by the third party is actually not enforcing the contract but
the right conferred by a particular contract in favour of a third party in the form of trust etc. For
example, in a contract between A and B, beneficial right in respect of some property may be
created in favour of C. In such a case C can enforce his claim on the basis of the right conferred
upon him. In Khwaja Muhammad Khan vs. Husaini Begum, An agreement between the fathers
of a boy and a girl that if the girl married a particular boy, the boy’s father would pay certain
personal allowance known as Kharch-i-pandan (betel-box expense) or pin money to the plaintiff.
It was also mentioned that a certain property had been set aside by the defendant and this
allowance would be paid out of the income of that property. The plaintiff married the defendant
son but the defendant failed to pay the allowance agreed to by him. Plaintiff brought an action
against the defendant. Held: The basis of the plaintiff’s claim being a specific charge on the
immovable property in her favour she is entitled to claim the same as a beneficiary, and as such,
the common law rule of privity is not applicable.

Conduct, acknowledgement, or admission

If a party by conduct, acknowledgement, or admission recognizes the right of other to sue

him, he may be liable on the basis estoppel. In Narayani Devi vs. Tagore Commercial
Corporation Ltd., in a contract between the plaintiff husband, and defendant, defendant agreed
➢ to pay certain amounts to the pt.’s husband during his lifetime&
➢ thereafter to pay the same to plantiff. for her life.
➢ On death of plaintiff husband, defendant -
• made certain payments to the pt., in pursuance of the agreement,
• had asked for the extension of time to pay, and
• called the plaintiff, to execute certain documents in this connection.
➢ On suit for recovery of the same defendant take the plea of privity of contract!

Held: Defendant have created such privity with the plaintiff, by their conduct, by
acknowledgement and by admission, that the plaintiff is entitled to her action even though there
was no privity of contract between the plaintiff, and the defendant,

Marriage settlement, partition or family arrangement

Where, under a family arrangement, the contract is intended to secure a benefit to a third
party he may sue in his own right as a beneficiary. Eg., on the partition of joint family property
between the male members, a provision is made for the maintenance of the female members of
the family. Eg., agreement of marriage by father of a girl, Two brothers agreeing to invest a sum
for the benefit of mother, a daughter and her husband agreeing with her father to provide
maintenance to mother on receipt of property, promise by a husband to his wife’s father to treat
her well and to provide separate dwelling house in case of default.

Covenants running with the land

Rule of privity is modified by the principles relating to transfer of immovable property A

person purchasing a land with the notice that the owner of the land is bound by certain duties
created by an agreement affecting the land shall be bound by them, although he was not a party
to it. In Smith & Snips Hall Farm ltd., v. River Douglas Catchment Board, Defendant agreed
with certain land owners adjoining a stream to improve the banks of the stream and to maintain
them in good condition and landlords paid costs and subsequently one of the landlords sold it to
plaintiff and board negligently maintained banks, which burst and flooded plaintiff land. Held:
Board was liable. Whole arrangement was to benefit the lands whoever be the owners.

Consideration may be past, executed or executory

Indian Contract Act recognizes three kinds of consideration, viz., Past, Executed and Executory.
It says that when at the desire of the promisor, the promise and the other person:
(a) Has done or abstained from doing, ( the consideration is past)
(b) Does or abstains from doing, ( the consideration is executed or present)
(c) Promises to do or to abstain from doing, ( the consideration is Executory or future)

Past Consideration

Past Consideration means that the consideration for any promise was given earlier and the
promise is made thereafter. It is, of course, necessary that at the time the act constituting
consideration was done, it must have been done at the desire of the promisor. For eg. I request
you to find my lost dog. After you have done the same, if I promise to pay you Rs.100 for that, it
is a case of past consideration. For my promise to pay you Rs.100 the consideration is your
efforts in finding my lost dog and the same had been done before I promised to pay the amount.
Here the consideration has been given at my request, because it is only when I request you to
find the dog.
Past services voluntarily rendered

Indian Contract Act recognises only such consideration which has been given at the desire of
the promisor, rather than voluntarily. If consideration has been given voluntarily, it is no
consideration. For example, if my dog has been lost and without any request from me to find the
same, you find that on your own and deliver the dog to me. This is a case of past services
rendered voluntarily. I promise to pay Rs. 100 to you after you have rendered these services,- can
such an agreement been forced ? Yes it comes in the exception.
Executed or present consideration

When one of the parties to the contract has performed his part of the promise, constituting the
consideration for the promise by the other side it is executed consideration. A advertises an offer
of reward of Rs. 100/- to anyone who finds out his lost dog and brings the same to him. B finds
the lost dog and brings the same to him. When B did his part of the job that amounted to
acceptance of the offer, resulting in a binding contract under which A is bound to pay Rs. 100/-
to B, and also simultaneously giving consideration for the contract. The contract in this case is
said to be “executed”. Executed consideration is different from past consideration – executed
consideration is the consideration provided simultaneously with the making of the contract. In
case of past consideration at the time of providing of the consideration the promise is
nonexistent.
Executory or future consideration

When one person makes a promise in exchange for the promise by the other side, the
performance of the obligation by each side to be made subsequent to the making of the contract,
the consideration is known as Executory. A agrees to supply certain goods to B, and B agrees to
pay for them at a future date, this is a case of executory consideration.

Consideration need not be adequate

A contract supported by consideration is valid even though it is inadequate. Explanation II to
section 25, “An agreement to which the consent of the promisor is freely given is not void
merely because the consideration is inadequate; but the inadequacy of the consideration may be
taken into account by Court in determining the question whether the consent of the promisor was
freely given.” The burden is on the party pleading absence of free consent. Inadequacy of
consideration is by itself is not ground for treating the contract as invalid but it may be a factor
 which the court may take into consideration to know whether the consent of a party was free.
For eg. A agrees to sell a horse worth Rs.1, 000 for Rs.10. A denies that his consent to the
agreement was freely given. The inadequacy of the consideration is a fact which the court should
take into account in considering whether or not A’s consent was freely given.

Consideration must be real, of some value

Although it is not necessary that consideration should be adequate, it is, however, necessary
that it should be real and should not be unsubstantial. In White v. Bluett A son used to complain
to his father that his brothers had been given more property than him. The father promised that
he would release the son from a debt if the latter promised stopped complaining. After the
father’s death an action was brought by the executors to recover the debt. The son contended that
the father had made a contract to release him from the debt in consideration for his promise not
to bore his father. Held: Promise by son not to bore his father with complaints in future did not
constitute good consideration for the father’s promise to release him, and, therefore, the son
continued to be liable for the debt. Promise not to bore the promisor is not enough to constitute
consideration.
Performance of an existing duty is no consideration

Consideration is a promise to do something more than what a person is already bound to do.
Doing of something which a person is already legally bound to do is no consideration.

Performance of Legal duty

• Collins v. Godefroy Plaintiff received a summons to give evidence in a case. Thereafter

the defendant, promised to pay to the plaintiff, some money for the trouble which was to
be taken by him in appearing in that case. Plaintiff sued defendant to recover the amount
promised by defendant. Held – Plaintiff having received the summons was already under
a public duty to give evidence, and therefore, the promise by the defendant to pay did not
constitute consideration for the promise.

Performance of Contractual duty

a) Pre-existing contract with the promisor

 b) Pre-existing contract with third parties

Performance of existing contractual duty

If the plaintiff is already bound to perform a particular contractual duty owed to the defendant,
his promise to pay something additional for the same promise is no consideration.
• Stilk v. Myrick, Two sailors having deserted in the course of a voyage, the captain of the
ship promised to distribute the wages of those two sailors amongst the other members of
the crew if they would work the ship home. Held: The members of the crew being
already duty bound to work the ship home, there was no consideration to pay the
additional amount and hence the promise to pay that amount could not been forced.

Performance of an existing duty owed to a third party

• Shadwell v. Shadwell, The plaintiff had already promised to marry one Ms. Nicholl. The
plaintiff’s uncle wrote a letter to the plaintiff as under: “I am glad to hear of your
intended marriage with Ellen Nicholl; and, as I promised to assist you at starting, I am
happy to tell you that I will pay to you 150 pounds yearly during my life or until your
annual income derived from your profession of a Chancery barrister shall amount to six
thousand guineas. Thereafter the plaintiff married Miss Nicholl. He could not earn 600
guineas from his profession but no annuity was paid by his uncle to him. After his uncle’s
death he brought an action against his executors to recover the amount promised to be
paid by his uncle to him. It was decided by a majority that the promise was enforceable as
it was supported by consideration. Consideration in this case being a benefit to the uncle
as marriage of a near relative could be of interest to him, and also detriment to the
plaintiff as he might have incurred pecuniary liabilities on the faith of the promise.

Promise to pay less amount than due – The rule in Pinnel’s case

According to English Law laid down in Pinnel’s case, an agreement to pay smaller sum in
lieu of a larger sum is not binding, as the agreement is without consideration. It means that in
spite of a promise to pay and receive a smaller amount than due, the promisor can claim the
whole of the amount due.
Exceptions to the rule in Pinnel’s case:

1. Payment in kind

The gift of a horse, hawk or robe, etc. in satisfaction (of a claim for money) is good. For it shall
be intended that a horse, hawk or robe, etc. might be more beneficial to the plaintiff than the
money in respect of some circumstance, or otherwise the plaintiff would not have accepted it in
satisfaction.
2. Payment before due date

The payment and acceptance of the smaller sum of money than originally due in satisfaction of
the whole, before the payment is due, “for peradventure parcel for it before the day would be
more beneficial to him than the whole at the day”. It means that the payment on an earlier date
constitutes sufficient consideration to discharge a part of the debt.
3. Part payment by a third party

Payment of a part of the sum due, by a third party, has been recognized to be enough to
discharge the whole of the debt. If one party has accepted part payment from a third party, he
cannot subsequently sue for the balance of the amount.
4. Composition with the creditors

An agreement between a debtor and a single creditor for payment of lesser amount than due will
come under the ban in Pinnel’s case, but an agreement between a debtor and creditors will come
under the exception.
5. Doctrine of promissory estoppel

This is an equitable estoppel preventing a person from denying what he asserted earlier. The
person making the representation or promise becomes bound by the same, on the basis of the law
of estoppel if another person has acted on the faith of such promise or representation. The
promise is enforceable at the instance of the promisee notwithstanding that there is no
consideration for the promise.

Indian law
In India, the promisee may accept in satisfaction of the whole debt an amount smaller than that.
No consideration is needed for such a promise.
S.63 “Every promisee may dispense with or remit, wholly or in part, the performance of the
promise made to him, or may extend the time for such performance, or may accept instead of it
any satisfaction which he thinks fit.” Illustrations A owe B 5,000 rupees. A pays to B, and B
accepts, in satisfaction of the whole debt, 2,000 rupees paid at the time and place at which the
5,000 rupees were payable. The whole debt is discharged.

Forbearance to sue is no consideration

Forbearing to sue or abstaining from enforcing a claim is good consideration for a promise to
pay, or do some other act. Forbearance to sue constitutes consideration in so far as the delay in
the proceedings is a benefit to the person intended to be sued. Promise to forbear may be implied
and it may be forbearance only for some unspecified time.
• Callisher v Bischoffsheim - Doubtfulness of original claim not relevant

A person promised not to sue for an agreed time, provided that some bonds were delivered to
them. When the bonds were not delivered, the person claimed damages for breach of that
agreement. The other person said that, as the money had not been due in the first place, (assumed
for the purpose of these proceedings that that was true). They could not enforce the delivery of
the bonds. The court took the view that if D's claim were accepted, no agreement to compromise
a doubtful claim could be enforced. If a party to an action believes bona fide that there is a
chance of success, then there is reasonable ground for suing and the forbearance will constitute
good consideration. The other party obtains an advantage of being free from the necessity to
defend the action. If the validity of the claim is doubtful but the plaintiff believes that he has a
good cause of action, forbearance to sue in such a case is good consideration. If a party made a
claim which they knew to be unfounded and then an attempt to derive an advantage by
compromise would be fraudulent. Essential to understand that there are in fact 2 contracts - the
initial contract which is the subject of the dispute, and then the 2nd contract which is intended to
settle the dispute arising from the first. The question is whether there is consideration for the 2nd
contract, and what effect this has on the obligations arising from the first.
No consideration no contract - Exceptions

Promise due to natural love and affection [ S.25(1)]

When the promise is made in favour of a near relation on account of natural love and affection,
the same is valid even though there was no consideration for such a promise. The following are
requirements:
• The parties to the agreement must be standing in a near relationship to each other.
• The promise should be made by one party out of natural love and affection for the other.
• The promise should be in writing, and
• The agreement is registered.

What is near relation has neither been defined in the Act, nor in any judicial pronouncement.
But, from the various decided cases it appears that it will cover blood relations or those related
through marriage, but would not include those relations which are not “near”, but only remotely
entitled to inherit. “Natural love and affection” between the parties so nearly related is also
needed. “Near relation” does not necessarily imply natural love and affection. In Rajlucky Dabee
Vs. Bhootnath Mookerjee - after lot of disagreements and quarrels between a Hindu husband
and his wife they decided to live apart and husband executed a registered document in favour of
wife whereby he agreed to pay for her separate residence and maintenance and agreement also
mentioned about quarrels and disagreements between the two. Held that from the recitals in the
document it was apparent that the document had been executed not because of natural love and
affection between the parties but because of the absence of it, and therefore the wife was not
entitled to recover the sums mentioned in the document.

Compensation for past voluntary services [S.25(2)]

When something has been done “at the desire of the promisor”, that constitutes a good
consideration in respect of a subsequent promise to compensate for what has already been done.
The second exception to Section 25 covers “cases where a person without the knowledge of the
promisor, or otherwise than at his request does the latter some service, and the promisor
undertakes to recompense him for it. The promise to compensate, though without consideration,
is binding because of this exception. The exception also covers a situation where the promise is
for doing something voluntarily “which the promisor was legally compellable to do.” When A
finds B’s purse and gives it to him and then B promises to pay A Rs.50, or A supports B’s infant
son and B promises to pay A’s expenses in so doing, there is a valid contract in such cases
although A’s act was a voluntary one. The exception covers situations where the service is
rendered voluntarily and without the promisor’s knowledge. It is also necessary that the service
must have been rendered to the promisor and nobody else.

Promise to pay a time barred debt

Another situation when an agreement is a valid contract even without any consideration is a
promise to pay a time-barred debt. Section 25 (3) requires the following essentials to be satisfied
in such a case.
▪ The promise must be to pay wholly or in part a time barred debt, i.e. a debt of which the
creditor might have enforced payment but for the law for the limitation of suits.
▪ The promise must be in writing and signed by the person to be charged there with, or his
duly authorized agent.

It is necessary that the debt must be one of which the creditor might have enforced payment but
for the law for limitation of suits. It, therefore, does not cover such debts which are
unenforceable for some other reasons. Thus if an insolvent debtor has been discharged from
payment under the insolvency law a subsequent promise by him to pay that debt cannot be
enforced unless there is a fresh consideration for the same. Similarly, if the payment of the debt
cannot be enforced because the debt was contracted by a person during his minority, the same is
not now enforceable if, on attaining majority, a promise is made to pay the same, because a
minor’s agreement which is void is incapable of being validated by ratification.

Agency
According to section 185 of the Indian Contract Act, 1872, no consideration is necessary to
create an agency.

Gifts
The rule of no consideration no contract does not apply to gifts. Explanation (1) to Section 25 of
the Indian Contract Act, 1872 states that the rule of an agreement without consideration being
void does not apply to gifts made by a donor and accepted by a donee.
Unlawful Consideration and its effect

Consideration means something reciprocally it’s actually a price which might be in sort of
some benefits paid by one party for the promise of another party. For legitimate contract
considerations and objects should be lawful. Object means the aim. Consideration means the
worth of the promise.
The consideration or object of an agreement is lawful, unless-
-it is forbidden by law; or
-is of such nature that, if permitted, it might 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 against public policy.
Every agreement of which the object or consideration is unlawful is void.

1. Forbidden by Law

Where the object or the consideration of an agreement is that the performance of an act which is
forbidden by law, the agreement is void. Acts or undertakings forbidden by law are those
punishable under any statute also as those prohibited (expressly or implicitly) by special
legislation of Parliament and state legislatures. For example, the assembly or sale of excisable
articles is prohibited under the Excise Act except upon a Government license. Sale of liquor
without a license is prohibited for this reason under the Excise Act and is, therefore, illegal. A
contract entered into in contravention of a statutory prohibition is going to be null and void
whether such prohibition is express or implied.
2. Defeat the purpose of Provisions of any Law

Though the thing or consideration for the agreement, sometimes indirectly forbidden by law,
they’re still forbidden if nature defeats the aim of the provision of law. Agreement with such an
object or consideration is void. Where a legislative enactment provides penalty for an act or
promise, the performance of such an act or promise would amount to the defeat of that
enactment, because it is implicit that the statute intends to forbid that act.
In Rajat Kumar Rath v. Government of India, the Orissa High Court has explained the
distinction in the following words: “A void contract is one which has no legal effect. An illegal
contract through resembling the void contract in that it also has no legal effect as between the
immediate parties has this further effect that even transactions collateral to it became tainted with
illegality and we, therefore, in certain circumstances not enforceable. If an agreement is merely
collateral to another or constitutes an aid facilitating the carrying out of the object of the other
agreement which though void is not prohibited by law, it may be enforced as a collateral
agreement. If on the other hand, it is part of a mechanism meant to carry out the law actually
prohibited cannot countenance a claim on the agreement, it being tainted with the illegality of the
object sought to be achieved which is hit by the law. Where a person entering into an illegal
contract promises expressly or by implication that the contract is blameless, such a promise
amounts to collateral agreement upon the other party if in fact innocent of turpitude may sue for
damages".

E Contract

Introduction
The advent of revolutionary technologies has ensured robust e-commerce in the country.
However the usage of technology without adequate legal framework will lead to chaos in the
society and will prove counterproductive to the business. The Indian Contract Act, 1872, The
Information Technology Act, 2000 and The Indian Evidence Act, 1872 are the crucial
legislations which determine the validity of an e-contract. E contracts are formed by way of
exchange of Emails and through on line agreements viz. browse wrap, shrink wrap and click
wrap agreements. All the said forms are valid under Indian law as if they comply with the
prerequisites of a valid contract. Major issues which arise pertain to capacity to contract, free
consent, decision on the applicable law and decision on the court jurisdiction. Though the Indian
legal system adequately addresses the e-contracts, the challenge before the law makers will be to
keep abreast of the issues which will arise with evolving technologies and to adequately address
them. The electronic contract is generally different from traditional contracts. E-contract is a
contract executed and enacted by way of software systems. The internet conveniently integrates
into a single screen traditional advertising, catalogues, shop displays/windows and physical
shopping. A viewer from any part of the world may want to get into contract to purchase a
product as advertised. In this transaction, the issue is raised for its execution and protection of the
consumers. Fundamental Principles of contract law continue to prevail in contracts made on the
internet. Nevertheless, not all principles will or can apply in the same manner that they apply to
traditional paper-based and oral contracts. In India, the recognition of an electronic contract is
mainly supported by the Information Technology Act, 2000. This paper is divided into basic
research issues in e-contracts, including conceptual analysis of e-contract, standard forms of e
contracts, and the ways in which e-contract is concluded, the laws governing to it in India and
the consumer’s protection in e-contract.

Definition
E-contract is a kind of contracts formed by negotiation of two or more individuals through
the use electronic means, such as email, the interaction of an individual with an electronic agent,
such as a computer program or the interaction of atleast two electronic agents that are
programmed to recognize the existence of a contract. E-contract is one of the divisions of e-
commerce or e-business. It holds a similar meaning to traditional business wherein goods and
services are switched for a particular amount of consideration. The only extra element it has is
that the contract here takes place through a digital mode of communication like the internet. It
provides an opportunity for the sellers to reach the end of consumer directly without the
involvement of the middlemen.
E-Contracts are contracts attracting principles of Uberrimaefidei in which the contracting
parties are not dealing at arm's length but one party is entirely dependent upon the information
supplied by the other party on the basis of which alone he expresses his willingness to contract.
The doctrine of Uberrimaefidei should be considered the foundation of e-contracts as the chances
of misrepresentation or suppression of material facts is most likely to occur in such transactions.
Although legal capacity is not explicitly dealt by the Information Technology Act, the law
presumes that once an online contract is concluded, both the parties are presumed to be
competent to do so. In other words, neither party is allowed to raise an objection at a later stage
that the contract is unenforceable for want of competence on the part of the parties.The doctrine
of Uberrimaefidei will be strictly adhered to in case of electronic contract and one party acting to
his detriment on the representation of the other that he is competent should not be put to any
prejudice.5E-contract is made through electronic mode with the help of internet. According to
the mode of its formation, there are different types of electronic contracts.

Types of Electronic Contracts

Broadly, e-contracts may be classified into following three types. While the shrinkwrap
transaction has been around for some time and actually exists in a paper environment, the other
two types of transactions (click-wrap and browse-wrap) are suitable to electronic commerce:
• Click-wrap Agreements
• Shrink-wrap Agreements
• Browse-wrap/Web-wrap Contracts
Click-Wrap Agreements

In click-wrap agreements, a party after going through the terms and conditions provided in
the website or programme has to, normally, indicate his assent to the same, by way of clicking on
an ‘I Agree’ icon or decline the same by clicking ‘I Disagree’. This type of acceptance is usually
done before receiving the merchandise. These sorts of contracts are extensively used on the
internet, whether it be granting of a permission to access a site or downloading of any software
or selling something via a website. This may be called the creation of contracts by conduct.
By clicking on any of these choices, he accepts or declines the terms. If he does not agree, the
process is terminated. Click-wrap agreements can further be of the following kinds:

Type and Click

In this case, the user must type ‘I accept’ or other specified words in an on-screen box and
then click a ‘Submit’ or similar button. This demonstrates acceptance of the terms of the
contract. A user cannot proceed to download or view the target information without observing
these steps.

Icon Clicking

In this case, the user must click on an icon of ‘I agree’ button on a dialog box or pop-up window.
A user may signify rejection by clicking ‘Cancel’ or closing the window.
Shrink-Wrap Agreements

The sale of software in stores, by mail and over the internet has resulted in quite a few
specialized forms of licensing agreements. For instance, software sold in stores is commonly
packaged in a box or other container and then wrapped in the clear plastic wrap. Through the
clear plastic wrap on the box, the purchaser can see the warning that states the use of the
software is subject to the terms of a license agreement contained inside, an agreement that
cannot be read before purchase of the software. The license agreement generally explains that
if the buyer does not wish to enter into a contract by purchasing the software, he must return
the product prior to opening the sealed package containing the CD on which the software
resides. If the software is returned with the sealed package unopened, a refund will be
obtained.
Browse-wrap/ Web-wrap Contracts

In browse-wrap contracts, the internet users will find the terms or conditions hyperlink
somewhere on web pages that proposes to sell goods and services. According to these terms
and conditions, using the site for buying the goods or services offered itself constitutes
acceptance of the conditions contained therein.
An agreement is considered as a browse wrap agreement which is intended to be binding
upon the contracting party by the use of the website. These include the use of the website.
These include the User Policies and terms of service of web sites and are in the form of a
“terms of use” or “terms of service”, which can be used as the links at the corner or bottom of
website.

ENFORCEABILITY OF E-CONTRACT

India is transforming into a visual jungle with internet becoming part and parcel of our life.
The growing trend of social media, online shopping, e-retailing has created a predicament for
the law makers in protecting the users from fraud, misrepresentation, identity theft and other
such challenges. The Information Technology Act of 2000 was implemented for the
governance and providing legal sanctity to transactions undertaken through electronic means
and also provide for authentication of digital signature, jurisdiction, penalties in case of
breach, etc. Section 10-A of the said Act has recognized the validity of these e-contracts. It
specifies that if an e- contract fulfils all the essentials as specified in Indian Contract Act of
1872 of a traditional contract i.e. valid offer and acceptance, capacities of the party, free
consent, etc., it will be considered valid and is enforceable in the court of the country for any
kind of breach when undertaken through any electronic means. As in case of Trimex
International FZE v. Vedanta AluminiumLtd. India, the hon‘ble Supreme Court recognized
that the contract whose terms and conditions are discussed through e-mails between parties,
though no formal contract was formed or signed is valid in the eyes of law.
The enforceability of click wrap, browse wrap and shrink wrap contract have been
challenged in various US Courts. Like, in case of Feldmanv Google, Inc the validity of
Clickwrap contract was discussed and the hon‘ble court observed that Feldman had sufficient
notice of terms and conditions of the contract as he went through a proper signing up process
including scrolling through whole terms and conditions page before assenting for it. Hence,
the court held that the contract entered between Feldman and Google was valid. However, in
the case of browse wrap contracts foreign courts are hesitant in enforcing its validity. In such
contracts, judicial opinion holds that for constituting a valid contract it is necessary for the
party to have constructive or actual notice of the terms and conditions of it. Therefore, where
the defendant failed to specify near the download button‘that the user will be bound to the
license agreement if he downloaded the software from the website; no contract was executed
between the parties. In light of these, the websites are now a day’s more inclined towards
click wrap contracts. Similarly, in case of shrink wrap contracts the court infers the assent of
the party from their scrapping of the wrap which has terms and conditions attached with it. In
the case of ProCD, Inc v. Zeidenburg,Zeidenburg protected his price discrimination policy
of the product through shrink-wrap licensing agreement however, ProCD after purchasing the
product uploaded the information on less rate over the internet violating the license
agreement. The court, in this case, held that ProCD had the option to reject the terms and
conditions of the contract by returning it, but his scrapping the wrap providing terms and
conditions was inferred by the court as his consent, thus he is bound by it. Indian judiciary
has failed to acknowledge the question of validity of these contracts as there is no precedent
till date for providing any type of ground rules over the enforceability of these contracts.
Although in the case of L.I.C India v. Consumer Education and Research Centre the
hon‘ble court has tried defining such contracts and observed that where the weaker parties do
 not have a bargaining power, such type of contracts were referred as dotted contracts. ‘Thus,
it can be said that the Indian courts have recognized the concepts of these contracts though no
guidelines for its regulation have been laid down by it. The reliance can be placed on the
foreign judgments based on the facts and circumstances of the case, yet a strong necessity for
proper legislative structure for its implementation has aroused has the Indian economy is
moving to paperless transactions.

ISSUES FACED BY E-CONTRACT

The concept of virtual world has impacted commerce of various countries including India.
The easy access to the internet, fax, computer programs or smart phones has acted as blood in
the body of e-commerce industry of our country. The enforcement of Information
Technology Act of 2000 has provided a legislative framework and governance to it.
However, as nothing is perfect in this whole might world, this statue also has certain
shortcomings pertaining to the raising issues in the country in respect of these e-contracts.
Following is few issues faced by electronic contracts in our country:
JURISDICTIONAL ISSUE

Paperless transactions like e-contract are borderless, therefore, it gets difficult to determine
the jurisdiction i.e. the extent of the limit of the court‘s authority over any suit or appeal at
the time of breach of e- contracts. As per Section 13(3) of the Information Technology Act of
2000:
a) the place of business of the originator will be deemed to be place where the information
was dispatched, and
b) place of business of the addressee will be deemed to place where the information was
received.
This implies that the location of computer sources through which it was dispatched and
received, places no role in determining the jurisdiction of the case. However, this section
limits the power provided by Section 20 of Code of Civil Procedure, 1908. As Section 20
clause c ‘specifies that the suit can be instituted in the court within whose local jurisdiction
the cause of action has aroused. Therefore, it raises the question over the jurisdiction of the
courts as cause of action may arise in e-contract at the place where the electronic information
was dispatched, irrespective of the fact of principle place of business. In case of P.R.
 Transport Agency vs. Union of India & others, the Allahabad Court dealt with the question
jurisdiction and held that the acceptance of the contract was sent through Email and received
in Chandauli (U.P) and principle place of business of the petitioner was at Vanaras (U.P)
thus, the place of jurisdiction on the present case lies in U.P. As electronic transactions have
no boundaries, it has become difficult to deal with the jurisdictional issue, especially when
both parties belong to different part of the world. The present legislations governing e-
contract have failed to answer questions as to jurisdiction lies in which country in case of
dispute, Law to be applied to solving the disputes (suppliers or consumers) or how will
decision be enforced in both the countries.
PARTIES TO CONTRACT

Transactions in an electronic contract are between parties which are stranger to each other.
This poses threat to both the contracting parties. As for validity of the contract under section
11 of the Indian Contract Act of 1872 it is necessary that parties are not minor, lunatic or
disqualified by the law however, while executing e-contract the major question arises are
over the competencies of the parties. Minors can easily enter into contracts through click
wrap or browse wrap contracts with the website. So, the legal liability is on the websites to
ensure that the party contracting is competent under Indian Contract Act of 1872 for it. To
ensure the competency of the party, the online websites have come up with various methods
such as signing up to the site, in which the person enters personal details including birth date
ensuring the website that the party has the capacity to enter into the contract. It is sometimes
accompanied with a dialogue box containing pictures, and users are required to identify
things in them to ensure the lunacy of the party. Despite these methods the enforceability of
e-contract is in question due to lack of stringent legislation to deal with such issue in depth.
SIGNATURE AUTHENTICATION

Indian Contract Act of 1872 recognizes both oral and written contracts; therefore, it is not
mandatory under this law for the valid contract to be signed by the parties. The signature in
traditional contracts signifies the intention of the party to constitute the contract and has more
legal value in the eyes of law. However, certain statute provides for the contract to be signed
by both parties such as in case of Indian Copyright Act, 1957, etc. E-contract being generated
through electronic means cannot be signed traditionally by the parties, so, it is required to be
 signed electronically through electronic signature or digital signature as defined under
section 3-A or Section 5. But, the major drawback of it is that not e signature is not valid on
every document. Documents like:
a) Negotiable instrument except the cheque
b) Powers of attorney
c) Trust Deed
d) Real Estate Documents
These are the documents which are required to be physically signed by the parties and
Information Technology Act 2000 has no applicability over it.
LOSS DUE TO TECHNICAL ERROR

E-contracts are documents which are entered into by the parties through electronic
transmissions and are stored in the virtual world. But, like paper transactions there is no
safety in the information stored in the world. Though, it is believed that anything which
enters the digital world always exists and is never lost yet there are no administrative, legal
or judicial guidelines over the scenario where the whole information or part of information is
lost due the failure of the technology.

Laws Governing E-Contracts in India

Indian Contract Act, 1872

The Indian Contract Act, 1872 governs the manner in which contracts are made and
performed in India, so every contract made should necessarily comply with the provisions of
the Act to make it legally enforceable. The provisions of the Indian Contract Act are wide
enough to cover such transactions. In the context of contract formation unless otherwise
agreed with by the parties an offer and acceptance of an offer or either of them, may be
expressed by means of data messages or electronic record. Where electronic record is used in
the formation of contract that contract shall not be denied validity or enforceability on the
sole ground that data messages were used for that purpose. As between the originator and the
addressee of the electronic record, a declaration of will or other statements should be valid,
effective or enforceable even though it is in the form of database.
Information Technology Act, 2000

The electronic contracts would be considered absolutely valid under the Information
Technology Act, 2000. As per Section 4 of the Information Technology Act, 2000 legal
recognition of electronic records, where any Information is in writing, typewritten or printed
form is made available to a user in the electronic form for subsequent reference shall be
deemed to have satisfied the requirement of law. In a layman’s language, this means that any
document which is in the written or printed version would be treated same and will have the
equal validity in the electronic form also. As per the newly introduced Section 10A 15of the
Information Technology Amendment Act, 2008” clearly states that the “Validity of contracts
through electronic means, that “Where in a contract formation, the communication of
proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the
case may be, are expressed in electronic form or by means of an electronic record, such
contract shall not be deemed to be unenforceable solely on the ground that such electronic
form or means was used for that purpose.”The Act also lays down the instruments to which
the Information Technology Act, 2000 does not apply, it includes negotiable instruments,
power of attorney, a trust deed, a will, and contracts for sale or transfer of Immovable
Property.
Indian Evidence Act, 1872

It is pertinent to contextualize at this juncture that evidence recorded or stored by availing the
electronic gadgets is given the evidentiary status. For instance: the voice recorded with the
help of a tape recorder. Now-a-days, the digital voice recorder, digital cameras, digital video
cameras, video conferencing are adding a new dimension to the evidentiary regime. The
emergence of information and communication witnessed a sea change by elevating the status
of the evidence recorded, generated or stored electronically from the secondary to primary
evidential status. The evidentiary value of e-contracts can be well understood in the light of
the various sections of Indian Evidence Act. Sections 85A, 85B, 88A, 90A and 85C deal with
the presumptions as to electronic records, whereas, Section 65B relates to the admissibility of
the electronic record.
 UNIT-III
DISCHARGE OF CONTRACTS
Discharge of a contract happens when the parties have not completely performed their
contractual obligations or when happenings, behavior of the parties or procedure of law releases
the parties from performance. Under Indian Contract Act, 1872 discharge of a contract means;
termination of the contractual connection between the parties in a contract. A contract is said to
be terminated when it stops to perform, when rights and obligations made by it come to an end.
Following are the modes of discharge of contract:
1. By Performance
2. By Frustration or Impossibility to Perform
3. By Agreement
4. By Assignment
5. By Breach

1. DISCHARGE OF CONTRACT BY PERFORMANCE

• Contingent contracts (Section 31-36): Has already been dealt under Unit-2.
• General Contracts (Section. 37-41)
• Joint Promises (Section 42-45)
• Time for Performance (Section 46-50)
• Reciprocal Promises (Section 51-54)

Contingent contracts (Section 31-36)

This topic has already been dealt under Unit-2.

General contracts
Performance means that doing of which is obligatory by the contract. Discharge by
performance occurs when the parties to the contract do their duties arising out of the contract
within the stipulated/ reasonable time and in the manner prescribed by the contract. However,
even if one party performs or completes his obligations, he only is discharged and not the other
party. The party so discharged can bring an action against the other, who is guilty of breach. The
general rule is that a party to a contract must perform exactly what he undertook to do. In the
Offer of performance (Section 38)

Performance can be either actual or attempted. When each party performs his obligations
exactly in the same manner in which it was intended in the contract. This brings the contract to
an end. After that, no claim would remain of one party against another; this is known as actual
performance. It may happen that the promisor offers performance of his obligation under the
contract at the proper time and place; however, the promise refuses to accept the performance.
This is known as ‘tender’ or ‘attempted performance’. It is then for the promisee to accept the
performance. If he does not accept, the promisor is not responsible for non-performance, nor
does he thereby lose his rights under the contract. Thus, a tender of performance is equivalent to
performance. A tender or offer of performance to be valid should satisfy the following
conditions:
a) It must be unconditional. For example, a tender of an amount less than what is due under the
contract is not an effective tender.
b) It must be created at a proper time and place, and under such circumstances that the person to
whom it's created could have a reasonable opportunity of ascertaining that the person by whom
it's created is able and willing to try and do the whole of what he's bound by his promise to do.
c) It must be made to the proper person.
d) It must be in relation to whole of the obligations as contained under the contract.
e) If the tender or offer is a proposal to deliver anything to the promisee, the promisee must have
a sensible opportunity of sighting that thing offered is the thing that the promisor is bound by his
promise to deliver.

Effect of refusal of party to perform promise wholly (Section 39)

When a party to a contract has refused to perform, or disabled himself from performing, his
promise in its entirety, the promisee may put an end to the contract, unless he has signified, by
words or conduct, his acquiescence in its continuance.
(a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two
nights in every week during the next two months, and B engages to pay her 100 rupees for each
night's performance. On the sixth night A willfully absents herself from the theatre. B is at
liberty to put an end to the contract.
(b) On the same facts, on the sixth night A willfully absents herself. With the assent of B, A
sings on the seventh night. B has signified his acquiescence in the continuance of the contract,
and cannot now put an end to it, but is entitled to compensation for the damage sustained by him
through A's failure to sing on the sixth night.

Effect of accepting performance from third person. (Section 41)

When a promisee accepts performance of the promise from a third person, he cannot afterwards
enforce it against the promisor.

Performance of Joint Promises

According to the English law when one of several promisors die the rights and liabilities
devolve upon surviving promisors, in case of last surviving promisor it devolves on legal
representatives of last surviving promisor. But according to Section 42 joint promises must,
during their joint lives, fulfill the promise and if any of them dies, his representatives must,
jointly with the surviving promisors, fulfill the promises and so on. On the death of the last
survivor, the representatives of all of them must fulfill the promise. But this is subject to do any
private arrangement between the parties either expressly or impliedly.
Section 43 of the Act lays down three rules for joint promisors:
a. When a joint promise is created and there is no specific agreement to the contrary, the
promisee could compel any one or more of the joint promisors to perform the complete
promise.
b. A joint promisor who has been compelled to perform the full of the promise could need
the other joint promisors to create an equal contribution of the performance of the
promise, unless a different intention seems from the agreement.
c. If any one of the promisors makes a default in such contribution, the remaining joint
promisors must bear the deficiency in equal shares.

Section 44 provides that where two or more persons have made a joint promise, a release of
one of such joint promisors i.e the promisee may waive a joint promisors responsibility but this
will not discharge the others. Further, the joint promisor who has been released will still be
responsible to the other joint promisors for his contribution but not to the promisee since he has
been released by the latter. Section 45 deals with joint promises and the devolution of joint
rights. If a promise has been made to more than one person jointly, the right to claim the
performance of such promise rests between the joint promisees throughout their lives. On the
death of a joint promisee, his legal representative will have the right to claim performance along
with the surviving joint promisees. After the death of the last survivor, the representatives of all
the joint promises will jointly have the right to claim performance of the promise.

Time and place for performance: Section 46-50

It is for the parties to a contract to decide the time and place for the performance of the
contract. The rules regarding the time and place of performance are given in sections 46 to 50 of
the Contract Act. These are as follows:

Performance of a promise within a reasonable time

According to Section 46 where the time for performance is not specified in the contract, and the
promisor himself has to perform the promise without being asked for by the promisee, the
contract must be performed within a reasonable time. The question 'what is a reasonable
time' is, in each particular case, a question of fact. Thus, it is clear from this provision that if
time for performance is not stated, the contract is not bad for want of certainty.

Performance of promise where time is specified

Sometimes, the time for performance is specified in the contract and the promisor has
undertaken to perform it without any application or request by the promisee. In such cases,
the promisor must perform his promise on that particular day during the usual hours of
business and at a place where the promise ought to be performed (section 47). For example,
A promises to deliver goods at B's warehouse on January 1, 1990. On that day A brings the
goods to B's warehouse, but after the usual hours of closing and they are not received. A's
performance is not valid.

Performance of promise on an application by the promisee

It may also happen that the day for the performance of the promise is specified in the contract
but the promisor has not undertaken to perform it without application or demand & by the
 promisee. In such cases, the promisee must apply for performance at a proper place and
within the usual hours of business. (Section 48)

Performance of promise where no place is specified and also no application is to be made

by promisee

When a promise is to be- performed without application or demand by the promisee and no place
is specified for performance, then it is the duty of the promisor to apply or ask the promisee
to fix a reasonable place for the performance of the promise and to perform it at such place

Performance of promise in the manner and time prescribed or sanctioned by promisee

Sometimes the promisee himself prescribes the manner and the time. In such cases, the promise
must be performed in the manner and at the time prescribed by the promisee. The promisor
shall be discharged from his liability if he performs the promise in the manner and time
prescribed by the promisee

Time as the Essence of the Contract

The term 'time as the essence of the contract' means that the time is an essential factor and
the concerned parties must perform their respective promises within the specified time. The mere
fact that time is specified for the performance of a contract is not by itself sufficient to prove that
time is the essence of the contract. Time is generally considered to be the essence of the contract
in the following cases:
a) Where the parties have expressly agreed to treat it as the essence of the contract.
b) Where the delay operates as an injury to the party and
c) Where the nature and necessity of the contract requires it to be performed within the specified
time. In mercantile contracts, unless a different intention appears from the terms of the contract,
time fixed for the delivery of the goods is considered to be the essence of the contract but not the
time for the payment of the price. This is so because the prices of goods keep on fluctuating so
rapidly that if punctuality is not observed it may result in heavy losses. But in case of the sale of
an immovable property, the time is presumed to be not the essence of the contract. According to
Section 55, where time is the essence of the contract and the party fails to perform their promise
in time the contract becomes voidable at the option of the other party i.e., if the promisee wants
he can rescind the contract. But in contracts where time is not the essence of the contract, if a
party fails to perform the contract in time, then the other party cannot rescind the contract but it
has the right to claim damages for the delay in performance.

Performance of Reciprocal Promises

Section 2(f) of the Contract Act defines a reciprocal promise as promises which form the
consideration or of the consideration for each other. In such cases there is an obligation on each
party to perform his own promise and to accept performance of the others' promises.

Order of Performances of Reciprocal Promises

Section 52 of Contract Act provides that where the order in which reciprocal promises are to
be performed is expressly fixed by the contract, they must be performed in that order and where
the order is not expressly fixed by the contract, they shall be performed in that order which the
nature of the transaction requires.

Effects of Preventing the Performance of Reciprocal Promises

Sometimes it may so happen that one party to a reciprocal promise prevents the other from
performing his promise, In such a situation, the contract becomes voidable at the option of the
party so prevented, and he is also entitled to claim compensation from the other party for any
loss suffered due to non-performance of' the contract. For example, G and B contracted that B
shall execute certain work for A for Rs. 1,000. B was ready and willing to execute the work
accordingly. But, G prevents him from doing so. The contract is voidable at the option of B and
if he decides to rescind it, he is entitled to recover from A compensation for any loss which he
has incurred due to its non-performance.

1. DISCHARGE OF CONTRACT BY IMPOSSIBILITY OF

PERFORMANCE/ FRUSTRATION OF CONTRACT
According to the Section 56 of the Indian Contract Act 1872, “an agreement to do an act
which is impossible in itself, such agreement is declared void”. This section deals with initial
impossibility and subsequent impossibility. It is as follows:
a. Agreement to do impossible act: An agreement to do an act impossible in itself is void.
b. Contract to do act after turning into impossible or unlawful:
c. Compensation for loss through non-performance of act known to be impossible or
unlawful:

The overhead section relies on common law doctrine of Frustration. Some legal systems
accept that changes of circumstances could justify modifying a contract wherever to maintain the
original contract would produce intolerable results incompatible with justice. Supervening
impossibility under section 56(2) means an impossibility which arises subsequent to the
formation of the contract shall make the contract void. It is also termed as the doctrine of
frustration. A contract become void on account of the subsequent impossibility only if the
following conditions are satisfied:

i) The act should have become impossible after the formation of the contract.
ii) The impossibility should have been caused by reason of some event which was
beyond the control of the promisor.
iii) The impossibility must not be the result of some act or negligence of the promisor
himself.

In Paradine v Jane, the common law courts laid this doctrine. The theme of this doctrine
was that when the law casts a duty upon a person and he is unable to perform for no fault of his,
he is excused for non-performance. in Taylor v Caldwell, Blackburn J., giving the judgment of
the Queen’s Bench, held the contract is not to be construed as a positive contract, but as matter
to an implied condition that the parties shall be excused in the case, before breach, performance
becomes impossible from the destroying of the thing without default of the contractor. The
overhead rule is applicable to both physical destruction of subject-matter and as well as failure in
object, this can be understood an illustration. In Krell v Henry, the defendant agreed to rent
from the plaintiff an apartment for 26th and 27th of June, on which days it had been announced
that the coronation procession would pass along that place. A part of the hire was paid in
advance. However, the procession having been cancelled owing to the King’s disease, the
defendant refused to pay the balance. Since the object of the contract was to have a view of the
coronation and the same had been frustrated by the non-happening of the coronation, the plaintiff
was not entitled to recover the balance.

Grounds of Frustration

Destruction of subject matter:

The doctrine of impossibility applies with full force where the actual and specific subject
matter of the contract has ceased to exist. In Taylor v. Caldwell the promise to let out a music
hall was held to have been frustrated on the destruction of the hall. Another example is the case
of Howell v Coupland, where the defendant contracted to sell a specified quantity of potatoes to
be grown on his farm, but failed to supply them as the crop was destroyed by a disease, the
contract became void applying doctrine of frustration.

Change of Circumstances

If a contract envisages performance by a particular individual, as in a contract to paint a

portrait, and no substitute is likely to be satisfactory, then the contract will generally be
frustrated by the incapacity of the person concerned. In many cases, of course, the identity of the
person who is to perform the contract will not be significant. For instance, a garage agrees to
service a car on a specific day, but on that day, as a result of sickness, it is short-staffed and
cannot perform the service. This will be concerned as a breach of contract, instead of frustration.
The contract is only to do the service, and the car owner is improbable to be worried about the
identity of the specific individual who carries outs the contract, as long as he or she is competent.

Non occurrence of Contemplated event

Sometimes, the performance of a contract remains entirely possible, but owing to the non
occurrence of an event contemplated by both parties as the reason for the contract, the value of
the performance is destroyed. The case of Krell v Henry that has been discussed above is an
example for the same.

Death or Incapacity of parties

A party to a contract is excused from performance if it depends upon the existence of a given
person, if that person dies or becomes too ill to perform. In Robinson v Davison, there was a
contract between the plaintiff and the defendant’s wife, to play the piano at a concert to be given
by the plaintiff on a specified day but was barred from doing so due to her hazardous illness. The
suit by the plaintiff claiming compensation was dismissed as the defendant’s wife was
incapacitated by performing her promise due to the illness.

Government, Administrative or Legislative Intervention

A contract will be dissolved when legislative or administrative intervention directly operates

on the fulfillment of the contract. In Metropolitan Water Board v Dick Kerr & Co Ltd, in which
a contract for the construction of a tank was ordered by the government to cease work during
World War I was held to have frustrated the contract. But the government intervention need not
be just during a war. Any change in law that will render the contract impossible to perform can
also frustrate the contract and free the parties of any liabilities to each other.

Intervention of War

Intervention of war or war-like conditions in the performance of contract also amounts to

frustration. In the case of Tsakiorglou & Co Ltd v Noblee & Thori GMBH, where the
defendants were supposed to ship goods to the plaintiff through Suez Canal but owing to a war
the canal was shut down. The defendants could have shipped the goods through the Cape of
Good Hope but did not do so. But the court ruled that the doctrine of frustration could not be
applied since the war has not made it impossible for the defendants to perform their promise as
an alternate route to ship the good existed. Further, if the intervention of war is due to the delay
caused by the negligence caused by a party, the doctrine of frustration does not apply.

Effects of frustration
1. Frustration shall not be self induced:

For example, a sale of shares by a company to its employees and also to the employees of its
subsidiary where the employees of the subsidiary company were allowed to buy shares though
the same is sold in auction. It cannot be frustration.
2. Frustration operates automatically to the extent of frustration:
For example where a in a contract for sale of 250 tons of barley to be grown in a land, the
defendant raised only 150 tons due to crop failure and sold to another. The sale is valid, as the
frustration operates only to the extent of failure.
3. Adjustment of rights:

When Section 65 is used to doctrine of frustration, then the effect of it will be restoration of
benefits. For example; A, is a singer, contracts with B, the manager of a theatre, to perform at his
theatre for three nights in every week during the next two months, and B undertakes to pay her
five hundred rupees for each night’s performance. On the eighth night, A intentionally absents
herself from the theatre, and B, as a result, cancels the contract. B must pay A for the seven
nights on which she had performed.

DISCHARGE BY ASSIGNMENT
Assignment of contract means transfer of rights and liabilities arising out of a contract to a
third party. An assignment to be complete and effective must be effected by an instrument in
writing. There are no specific provisions in the Contract Act dealing with assignment. It is a term
used in the Transfer of Property Act. Contracts involving personal skill or taste or ability must be
performed by the promisor himself. In other words such contracts cannot be assigned. But when
the contract is not of a personal nature, it can be assigned subject t o certain conditions.
Contracts can be assigned either by the act of parties or by operation of law.

Assignment by act of parties

This means that the parties themselves make assignment. The rules in this regard are as under:
i) The liabilities or obligations under a contract cannot be assigned. It means that the
promisor cannot compel the promisee to accept some other person as the promisor in his
place. For example, A owes B Rs. 500 and A is also to recover Rs. 500 from P. A cannot
compel B to recover the money from P. But, the promisor may transfer his liability to a
third person with the consent of the promisee and the transferee. In the example given
above, A can transfer his liability to P with the consent of B and P. This is technically
known as 'novation'.
ii) If the contract does not expressly or impliedly provide that the contract shall be
performed by the promisor only, the parties can decide that the performance be done by
 another competent person. But, even then the promisor remains liable to the promisee for
proper performance.
iii) The rights and benefits under a contract, which is not of a personal nature, can be
assigned. For example, A owes B Rs. 1,000. B may assign his right to C. But in such a
situation the assignee takes assignment subject to all equities between the original parties.
In the above example if A has already paid a portion of the debt to B, he will be liable to
pay to C a correspondingly less amount.
iv) An actionable claim can always be assigned, but this must be done by an instrument in
writing. It is also necessary that a notice of assignment has been given to the debtor. An
actionable claim is a claim to any debt (except a secured debt) or to any beneficial
interest in movable property. Examples of actionable claims are book debts, money
debts, right of action arising out of a contract etc.

Assignment by operation of Law

Contracts which are not of a personal nature get assigned due to operation of law.
Assignment by operation of law takes place in cases of death or insolvency of any party to the
contract. Upon the death of a party to the contract his rights and obligations automatically pass
on to his heirs or legal representatives. In case of insolvency, all the rights and obligations pass
on to the official Receiver or Assignee.

DISCHARGE BY AGREEMENT
Just as a contract is created by means of an agreement, it can be terminated or discharged by
mutual agreement. If the parties to a contract agree to make a fresh contract in place of the
original contract, the original contract is discharged. According to Section 62 if the parties to a
contract agree to substitute a new contract for it, or to rescind or alter it, the original contract
need not be performed. A contract can be discharged by mutual agreement in any of the
following ways.

Novation
The term 'novation' means the substitution of a new contract for the existing one. This
arrangement may be either between the same parties or between different parties. The
consideration for the new contract is the discharge of the original contract. Since novation
implies a new contract, all the parties to the existing contract must agree to it. For instance,
Adam owes money to Brown under a contract. It is agreed between Adam, Brown and Carlos
that Brown shall thereafter accept Carlos as his debtor, instead of Adam. The old debt of Adam
to Brown is at an end and a new debt from Carlos to Brown has been contracted. When the
parties to a contract agree to replace the existing contract with a new contract, it is called
Novation. This is novation involving change of parties. When the parties to a contract decide to
replace a new contract for it, the original contract is discharged and need not to be performed.
The replace of a new contract is impossible after there has been a breach of the original contract.

Rescission
Rescission means cancellation of the contract. If by mutual agreement the contracting parties
agree to rescind the contract, the contract is discharged. A contract can be rescinded before the
performance becomes due. Non-performance of a contract by both the parties for a long period,
without complaint, amounts to implied rescission. Rescission is different from novation in the
sense that in case of novation a new contract is substituted for the original contract whereas in
rescission the original contract is cancelled and no new contract is made.

Alteration
It means a change in one or more of the terms of a contract with consent of all the parties.
Alteration has the effect of terminating the original contract. In an alteration there is a change in
the terms of a contract but no change of parties to it. In novation there may be change of parties.
If a document or contract in writing is changed by addition or elimination, it is discharged,
except as against a party creating or agreeing to the change, for no body shall be allowed to take
the chance of pledging a fraud, without running any risk of losing by the event, when it is
identified. This principle is subject to the following rules:
i) The change must be created intentionally by the promisee or by one acting with the
promisees’ consent and even an change by a stranger while the instrument is in the
protection of the promisee will have the same effect.
ii) The change must relate to the material part of the contract. What is considered as
material or immaterial depends on the facts and circumstances surrounding the contract.
In most cases a material change will be a higher liability on the promisor.
Remission
It means the acceptance of a lesser sum than what was contracted for or a lesser fulfillment
of the promise made. According to section 63, every promisee may remit or dispense with it,
wholly or in part, or extend the time of performance, or accept any other satisfaction instead of
performance. Illustration: A owes B Rs. 5,000. A pays to B Rs. 3,000 who accepts it in full
satisfaction of the debt. The whole debt is discharged.

Waiver
Waiver means abandonment or intentional relinquishment of a right under the contract.
When a party waives his rights under it the other party is released from his obligation. For
example, A promises to paint a picture for B. afterwards forbids him to do so. A is no longer
bound to perform the promise. In the case of M.Sham Singh v. State of Mysore, Sham Singh
was offered scholarship by the State to study in the US upon the condition that on his return to
India, he would serve the State if the State offered him a job within six months of his return
failing which he would have to refund the scholarship amount. On his return he requested for an
extension of a period of 6 months which was granted by the State. Sham Singh went back to the
US and assumed a position to serve the latter. In a suit for claim of refund of scholarship by the
State, the court held that it could not be said that the State had waived the liability of Sham
Singh and that it was merely an extension of time for performance of his promise.

Accord and Satisfaction

An accord and satisfaction is a legal contract whereby two parties agree to discharge a tort
claim, contract, or other liability for an amount based on terms that differ from the original
amount of the contract or claim. Accord and satisfaction is also used to settle legal claims prior
to bringing them to court. Accepting some other satisfaction instead of actual performance is
known as the principal of “accord and satisfaction” under English Law, and this results in the
discharge of obligation under the contract.

DISCHARGE BY BREACH
In general sense, breach is a failure to act in a required or promised way. Breach of contract
is failing to perform any term of a contract, written or oral, without a legal excuse. This may
include not completing a job, not paying in full or on time, failure to deliver all the goods,
substituting inferior or significantly different goods, not providing a bond when required, being
late without excuse, or any act which shows the party will not complete the work. Breach of
contract is one of the most common causes for filing suits for damages or suit for “specific
performance” of the contract in the court. In order to uphold a case of breach of contract the
court must satisfy itself of all the following requirements:-
i. The contract must be valid. It must contain all the essential elements of the contract so
that it can be heard by a court. If all the essentials are not present, the contract is not
considered as a valid contract; hence no suit shall lie in the court.
ii. The plaintiff must show that the defendant has broken the contract.
iii. The plaintiff did everything required for the performance of the contract.
iv. The plaintiff must have given a reasonable notice to the defendant of such breach. If the
notice is in writing, this will prove to be better than an oral notification.

Types of breach
Thus, breach is of two kinds’ namely anticipatory breach, and actual or present breach.

Anticipatory Breach
It takes place even before the date for performance of contract that is fixed by the parties.
The breach may be committed by the party either expressly by making a communication to the
promisee about this intention or in an implied manner by disabling himself for the performance
of the contract. For example, Sam had promised to sell a machine to Charlie on 20th August. On
10th August, Sam contracts to sell the same machine to Rainer and lets Charlie know about it.
Theoretically, Sam may break the contract with Rainer and sell the machine to Charlie on 20th
August. But, Charlie is entitled to conclude that there is anticipatory breach on 10th August.
Section 39 of Act, provides for the concept of anticipatory breach as follows: When a party to a
contract has refused to perform, or disabled himself from performing, his promise in its entirety,
the promisee may put an end to the contract, unless he has signified, by words or conduct, his
acquiescence in its continuance.
In Hochster v De la Tour, is the leading case on anticipatory breach. A appointed B to
accompany him on a tour for three months from 1st June at a certain salary. Before 1st June, A
told B that B was no more required by him. B sued A, without waiting for 1st June. A argued
that there was no breach because 1st June had not arrived yet. But, the court said that since A had
renounced the contract, B was not required to wait till 1st June to initiate any legal action. This
shows that a contract becomes a legal entity not from the moment the performance becomes due
but from the moment it is made.

Effects on anticipatory breach upon rights of parties:

a. Innocent party is excused from performance or further performance. The obligation under the
original contract comes to an end and is replaced by operation of law by another obligation,
namely to pay damages. The anticipatory breach would give to the aggrieved party two
options:
• He may treat the anticipatory as the actual breach and declare his intention of doing so. Then,
he would be entitled to initiate action against the guilty on this assumed actual breach. The
damages shall be measured on the basis of the date of anticipatory breach becoming the date
of default. The aggrieved party may initiate action immediately or later. In the example of
Hochster v De la tour case, given above, the aggrieved party had chosen this option.

In an anticipatory breach in case of contingent contract, immediate actions for damages lie. In
Frost v. Knight, the defendant promised to marry the plaintiff on the death of his father. While
the father was still alive, the defendant announced his intention to not fulfill the promises to
marry and broke of the engagement. The plaintiff without waiting for the death of the
defendant’s father brought an action for the breach. The court dismissed the contention of the
defendant that the breach could only arise on the happening of the contingency and awarded
damages to the plaintiff.
• He may ignore the anticipatory breach and choose to wait till the date of actual performance,
hoping that the promisor may change his mind. If this option is exercised, then, the contract
continues in its ordinary manner and both the parties remain liable to perform their respective
obligations. The promisor may perform the promise as per the terms of the contract. If he
does not, then, the aggrieved party would become entitled to take action for actual breach of
the contract. In the second option, the aggrieved party would incur a risk. If during the
waiting time, and before the date of actual performance, an event occurs that renders the
 contract impossible to perform, the aggrieved party will have no remedy because the contract
becomes void as per Section 56.

In Avery v Bowden, by contract the claimant was to carry cargo for the defendant. The claimant
arrived early to collect the cargo and the defendant told them to sale on as they did not have any
cargo for them to carry and would not have by the agreed date. The claimant decided to wait
around in the hope that the defendant would be able to supply some cargo. However, before the
date the cargo was supposed to be shipped the Crimean war broke out which meant the contract
became frustrated. The claimant therefore lost their right to sue for breach. Had they brought
their action immediately they would have had a valid claim.
b. The party repudiating may choose perform when the time comes and the promise will be
bound to accept the same. Hence if the repudiation of the contract is followed by affirmation
of the contract, the repudiating party would escape liability.
c. The date of assessment of damages in the case anticipatory breach would be assessed at the
time when repudiation takes place. In the case of Ramgopal v. Dhanji Jadhavji Bhatia, the
defendants, the owners of a ginning mill, contracted with the plaintiff, a cotton merchant, to
use half the mill’s working capacity for ginning his cotton. But the defendant repudiated the
contract before any cotton was supplied or ginned. The plaintiff was entitled to recover the
estimated loss of profits at the time of repudiation.

Extent of breach or repudiation

Every minor irregularity is not repudiation so as to put an end to contract. The effect of the
breach upon the contract as a whole be considered. For example, A contracts to deliver 100 bales
of cotton in installments to B. The 16th installment of delivery was below the standard. B wanted
to repudiate But it was not the intention of A to repudiate the contract as sub standard goods did
not amount to breach in entirety and hence B could not repudiate the contract. The party in
default must have refused altogether to perform the contract and the refusal must go to the whole
of the contract, otherwise the other party would not be justified in putting an end to the contract.

Actual Breach
Actual or present breach means where one party refuses to perform his part of the
obligation on the due date or performs incompletely or not according to the terms of the contract.
A party may fail to perform what he has promised, then he is said to make actual breach. Thus
Actual breach may take place at the time when the performance is due, or during the
performance of the contract. For example, where on the appointed day the seller does not deliver
the goods or the buyer refuses to accept the delivery. Refusal of performance maybe express or
implied. This type of breach of contract occurs in the case of installment contracts such as, sale
of goods, delivery by installments, payment by installments etc.

Difference between Anticipatory Breach and Actual Breach

Basically, breaches of contract fall into one of these two categories. Both anticipatory
and actual breaches of contract are bad news for the parties to the contract. They can waste both
time and money, and certainly lead to frustration for the parties to the contract. An actual breach
occurs when one person refuses to fulfill his or her part of obligation on the due date or performs
incompletely and anticipatory breach occurs when one party announces that he intends not to
fulfill his or her part of obligation, before the due date for performance. This doesn’t mean there
aren’t remedies in either case. A breach of contract, no matter what form it may take, entitles the
innocent party to maintain an action for damages.