Law Of Contract

• Law of contracts in India defines Contract as an

agreement enforceable by law which offers personal
rights, and imposes personal obligations, which the law
protects and enforces against the parties to the
agreement.

• The general law of contract is based on the conception,

which the parties have, by an agreement, created legal
rights and obligations, which are purely personal in their
nature and are only enforceable by action against the
party in default.
 Essentials of law of contract
• The Offer
An offer is a verbal or written promise to take some
action or to refrain from acting in exchange for a set of
agreed upon terms.

Verbal offers can be difficult to prove if the situation

gives rise to a court case.

This method of contracting should be avoided when

possible.
•Acceptance
Just as offers can be verbal (though it's not recommended),
acceptance can also be done verbally.

In business contracts, the terms are almost always handled in

writing so that they are clear.

In order to make sure everyone understands the terms, the

offer should clearly lay out the points that involve acceptance,
such as expiration dates, rights of revocation, and the
appropriate forms of acceptance.
•Consideration
Consideration is the value that each party brings to a contract.

This might be monetary, or it may take the form of a promise

to carry out a particular act.

Performing an act can be defined as something a party is

expected to do or something the party is expected to refrain
from doing.

These expectations should be spelled out clearly rather than

left up to the law to interpret.
•Mutuality of Obligation
The mutuality of obligation is the binding agreement between
the parties to the terms of consideration.

If one party holds more leverage, such as a right to cancel, a

court may consider whether or not mutuality of obligation has
been met.

 If it is not met, the court can invalidate the contract.

•Competency and Capacity
The contract requires that each party be legally competent
and have the capacity to agree to the terms.

Minors and people with limited mental capacity are not

considered competent.

A court will usually find that such a party does not have the
capacity to enter into a legally binding contract.
 Types of Contracts
• Definite quantity contract: This is an agreement
that one party will deliver specific amounts and types
of goods or services at a specified time and price.

• Firm-fixed-price contract: This is an agreement

in which a contract receives a set amount of money
from a customer for providing all goods or services up
front. The contractor takes the risk if it's not possible
to control the costs of the job.
•Fixed-price contract: This is an agreement with
adjustable pricing, including a maximum price and a
target price, subject to the terms of the contract.

•Time and materials: This is an agreement in which

a customer pays a contractor directly for the materials
involved in the job and a fixed hourly rate for the
labor.
 Offer
• A promise to do or refrain from doing something in exchange for
something else.  An offer must be stated and delivered in a way
that would lead a reasonable person to expect a binding contract
 to arise from its acceptance. 

• 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

• When a person expresses his willingness to another person to do

or to abstain from doing something and also obtain the consent
of such expression, it is called an offer.
 Essentials of a valid offer
• Offer must be communicated :-
Communication of offer is the most primary thing which is to be
done for a valid offer.

The offeror must communicate offer to the offeree. The

communication can be either in oral or written form.

The offer can directly communicate to the person specific to whom it

is offered or it can be in general in nature.

For example : “A” wants to sell his car and he has published an
advertisement in newspaper which is a form to communicate the
offer to general public.  Hence it is a valid offer.
•Must create legal relationship:-
A valid offer creates a legal relationship which means there
must be an intention of the offeror to work under legal
obligation or to be legally bounded by law not under social
obligation.

For example : “X” (Father of Y) says to “Y”, if he pass the exam

he will get a new video game. “Y” passed the exam asked his
father to give him video game as he had promised to Y. Here X
is not legally bound as the offer doesn’t create any legal
obligation against X.
•Definite, unambiguous and certain in nature:
Offer must be certain as specified in [Section 29], it must be
unambiguous means that the thing offered must clearly
specified.

For example : Mitesh offered to sell his car to Tanmay. Mitesh

is owned two cars one is of Ford & other is of BMW and
Mitesh offered his Ford car to Tanmay but Tanmay thought
Mitesh if offering him his BMW one. As in the offer it was not
definite which car Mitesh wants to sell, thus this is not a valid
offer.
•It must distinguished from invitation to offer:-
The offer makes a person to enter into a legally binding
contract whereas invitation to offer invites the person to
enter into contract.

For example : A suit was displayed with a price tag in a shop.

This is not a offer it is invitation to offer.

•It may be general or specific in nature:-

The offer can be given to public at large in general by
advertisement in newspaper etc. or it can be given specific
person too.
•Offer must be made with a view to obtain the assent :-
The offeror must obtain consent which should be “free” in
nature as define under Section 14 as it define it should not be
taken under coercion [section 15], undue influence [Section 16],
fraud [Section 17], misrepresentation [Section 18] & Mistake
[Section 20, 21 and 22].
 Acceptance
• The Indian Contract Act 1872 defines acceptance in Section 2
(b) as “When the person to whom the proposal has been made
signifies his assent thereto, the offer is said to be accepted.
Thus the proposal when accepted becomes a promise.”

• So as the definition states, when the offeree to whom

the proposal is made, unconditionally accepts the offer it will
amount to acceptance. After such an offer is accepted the offer
becomes a promise.

• Say for example A offers to buy B’s car for rupees two lacs and B
accepts such an offer. Now, this has become a promise.
 Essentials Of a Valid Acceptance
• It must be given by the Offeree:
An offer can be accepted only by the person to whom it is made.

 It cannot be accepted by an other person without the consent of

offeror.

If anyone attempted to accept it no contract with that person arises.

Example: A sold his business to B without disclosing the fact to his

customers. J sent an order for the supply of goods to A by name. B
received the order and executed the same. It was held that thee was
no contract between B and  J because J never made any offer to B.
•It must be Absolute & Unconditonal:
In order to convert the offer into an agreement the
acceptance must be absolute and unconditional.

 If the offeree imposes any condition in his acceptance it is not

a valid acceptance but a counter offer.

Example: A offers to sell his watch to B for Rs.500 and B replies

that he can buy it only for Rs.300 thee is a material variation in
the acceptance. Therefore, there is no agreement as the
acceptance is not absolute and unconditional.
•It must be in a Prescribed Manner:
If the offeror in his offer has prescribed any particular manner
of acceptance it must be given according to all that particular
manner.

 If no particular manner is prescribed in the offer then

acceptance should be made in a reasonable manner.

Example: A makes an offer to B and writes “if you accept the

offer send your acceptance by telegram.” B sends his
acceptance by registered post. It is not a valid acceptance. But
a should inform B that it is rejected because it not in the
prescribed manner.
• It must be Communicated to the Offeror: 
In order to form a contract, the acceptance must be
communicated to the offeror in a clear manner by the offeree
or his authorized agent.

 Mere expression of intention to accept an offer is not a valid

acceptance.

Example: A proposes by letter to purchase B’s house. B

expresses his intention to sell it to A but does not send a reply
to him. The house is sold to C despite B’s intention. A has no
legal remedy against B.
•It may be Express or Implied:
When an acceptance is given by words spoken or written, it is
called express acceptance.

When it is given by conduct, it is called implied acceptance.

Sometimes the proposal instead of being made to a definite
person is made to the public.

Example: A wrote a letter to B to sell his cycle for Rs.2,000. B

accepted his offer and sent a letter of acceptance to A. It is an
express acceptance.
 Consideration
• Consideration is the price of the contract and it can be
right, interest or responsibility etc.

• According to section 2(d) of the Indian Contract Act “when

at the desire of the promisor, promisee or any other person
has done or abstained from doing or does or abstains from
doing or promises to do or to abstain from doing
something, such act or abstinence, or promise is called a
consideration for the promise.”
When we say that consideration is an act it acquires an
affirmative tone.

For example A promise to pay ` 10,000 to B if B will sell his

mobile to him. When we say that consideration is abstinence or
forbearance it acquires negative tone. It means one party agree
not to do something in lieu of the promise of other party of the
contract. Thus one party may be able to benefit due to the
abstinence of another who refrains from some gain.
 Essentials of consideration
• It must move at the desire of the promisor:
In order to constitute legal consideration the act or
abstinence forming the consideration for the promise
must be done at the desire or request of the
promisor.

Example: A saves B’s house from the fire without

being asked to do so. A cannot demand payment for
his services because A performed this act voluntarily
and not at the desire of B.
•It may move from the Promisee or any other person:
The second essential of a valid consideration is that
consideration may move from the promisee or from a third
person on his behalf.

 In other words the act which is to constitute consideration

may be done by the promise or any other person.

Example: A, an old lady, gifted her property to her daughter R

on the condition that she should pay certain amount annually
to A’s brother C. On the same day R, entered into an
agreement with her Uncle C to pay the amount. Afterwards
she refused to fulfill her promise. C filed a suit. It was held that
C was entitled to recover the amo0unt as the consideration on
his behalf had moved from her sister A.
•It may be past, present or future:
It is clear from the definition of consideration that it may be
past present or future. It means that the consideration is an
act, which has already been done at the desire of the
promisor, or in progress or is promised to be done in future.

 A) Past Consideration:
When the consideration for a present promise was given before
the date of the promise it is called a past consideration. It is not
a valid consideration.

Example:
1. A has lot his pure and B a finder, delivers it to him. B cannot
demand payment for his services because of past consideration.
2. A teaches the son of B at B’s request in the month of January
and in February B promises to pay A sum of Rs.2,000 for his
services. The services of A will be past consideration.
B) Present Consideration:
When consideration is given simultaneously by one party to
another at the time of contract, it is called Present
Consideration. The act constituting the consideration is wholly
or completely performed.

Example:
A sells a book to B and B pay its price immediately it is a case
of present consideration.
C) Future Consideration:
When the consideration on both sides is to be given at a future
date, it s called future consideration or executory
consideration.

 It consists of promises and each promise is a consideration for

the other.

Example: X promises to deliver certain goods to Y for Rs.1500

after a week upon Y’s promise to pay the agreed price at the
time of delivery. The promise of X is supported by promise of Y
and the consideration is executory on both sides.
•It need not be Adequate:
It is not necessary that consideration should be adequate to
the value of the promise.

The law only insists on the presence of consideration and not

on its adequacy.

It is for the parties to the contract to consider the adequacy of

consideration and the courts are not concerned about it.

Example: A agrees to sell his car worth Rs.200,000 for

Rs.50,000 only and his consent is free. The agreement is valid
contract.
•It must be Real:
It is necessary that consideration must be real and competent.

Where consideration is physically impossible illegal uncertain

or unreal it is not real and therefore shall not be a valid
consideration.

A) Physically Impossible:

A promise to do something which is physically impossible.

Example: A, promise to put life in B’s dead brother on B’s

promise to pay him Rs.1 Lac.
B) Legally Impossible:
A promise to do something which is illegal.

Example: A promise to pay Rs.1 Lac to B on his promise to

beat C.

C) Uncertain Consideration:

A promise to do something, which is too unclear and
uncertain.

Example: A employs B for a certain work and B promises

to pay A.
 Exceptions to the ‘No Consideration No
Contract’ Rule
• Section 25 also lists the exceptions under which
the rule of no consideration no contract does not
hold, as follows:
Natural Love and Affection
If an agreement is in writing and registered between
two parties in close relation (like blood relatives or
spouse), based on natural love and affection, then
such an agreement is enforceable even without
consideration.
Example, Peter and John are brothers. In his will, their father
nominates Peter as the sole owner of his entire property after his
death.

John files a case against Peter to claim his right to the property
but loses the case.

 Peter and John come to a mutual decision where Peter agrees

to give half of the property to his brother and register a document
regarding the same.

Eventually, Peter didn’t fulfil his promise and John filed a suit for
recovery of his share in the property.

The Court held that since the agreement was made based on
natural love and affection, the no consideration no contract rule
didn’t apply and John had the right to recover his share.
Past Voluntary Services
If a person has done a voluntary service in the past and the
beneficiary promises to pay at a later date, then the contract is
binding provided:
The service was rendered voluntarily in the past
It was rendered to the promisor
The promisor was in existence when the voluntary service
was done (especially important when the promisor is
an organization)
The promisor showed his willingness to compensate the
voluntary service

Example, Peter finds Johns wallet on the road and returns it to

him. John is happy to find his lost wallet and promises to pay
Peter Rs 2,000. In this case, too, the no consideration no
contract rule does not apply. This contract is a valid contract.
Promise to pay a Time-Barred Debt
If a person makes a promise in writing signed by him or his
authorized agent about paying a time-barred debt, then it is
valid despite there being no consideration.

 The promise can be made to pay the debt wholly or in part.

Example, Peter owes Rs 100,000 to John. He had borrowed the

money 5 years ago. However, he never paid a single rupee
back. He signs a written promise to pay Rs 50,000 to John as a
final settlement of the loan. In this case, ‘the no consideration
no contract’ rule does not apply either. This is a valid contract.
Creation of an 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.
Bailment
Section 148 of the Indian Contract Act, 1872, defines bailment
as the delivery of goods from one person to another for some
purpose.

This delivery is made upon a contract that post

accomplishment of the purpose, the goods will either be
returned or disposed of, according to the directions of the
person delivering them.

No consideration is required to effect a contract of bailment.

Charity
If a person undertakes a liability on the promise of another to
contribute to charity, then the contract is valid. In this case,
the no consideration no contract rule does not apply.

Example, Peter is the trustee of his town’s charity

organization.

He wants to build a small pond in the town to enhance

greenery and offer the residents a good place to walk around
in the evenings.

He raises a charity fund where he appeals to people to come

ahead and contribute to the cause. Many people come
forward as subscribers the fund and agree to pay Peter their
share of the amount once he enters into a contract for
constructing the pond.
After raising half the amount, Peter hires contractors for
building the pond.

However, 10 people back out at the last moment. Peter files a

suit against them for recovery.

The Court ordered the 10 people to pay the amount to Peter

since he had undertaken a liability based on their promise to pay.

 Even though there was no consideration, the contract was valid

and enforceable by law.
 Doctrine of privity of contract
• The doctrine of privity of a contract is a common law principle
which implies that only parties to a contract are allowed to sue
each other to enforce their rights and liabilities and no stranger is
allowed to confer obligations upon any person who is not a party
to contract even though contract the contract have been entered
into for his benefit.

•  The rule of privity is basically based on the ‘interest theory’ which

implies that the only person having an interest in the contract is
entitled as per law to protect his rights.

• Example:- If Ramesh makes a promise to deliver goods to Arun.

Then in this case, if Ramesh breaches the contract then only Arun
has a right to prosecute him and no other person can prosecute
 Essentials of Privity of contract
• A contract has been entered into between two parties:- The most
important essential is that there has been a contract between 2 or
more parties.

• Parties must be competent and there should be a valid

consideration:- Competency of parties and the existence of
consideration are pre-requisites for application of this doctrine.

• There has been a breach of contract by one party:- Breach of

contract by one Party is the essential requirement for the
application of the doctrine of privity of contract.

• Only parties to contract can sue each other:- Now after the breach,
only Parties to a contract are entitled to sue against each other for
non-performance Of contract.
 Exceptions to the Doctrine of Privity of
contract
• As a general rule only parties to contract are entitled to
sue each other, but now with the passage of time
exceptions to this general rule have come, allowing even
strangers to contract to prosecute. These exceptions are:-

A beneficiary under a contract:- If a contract has been

entered into between 2 persons for the benefit of a third
person not being a party, then in the event of failure by
any party to perform his part, the third party can enforce
his right against the others.
For eg.:- In a contract between Alex and James, beneficial right in
respect of some property may be created in favor of Robin and in
that case, Robin can enforce his claim on the basis of this right.  

This concept of a beneficiary under a contract has been

highlighted in the case of Muhammad Khan v. Husaini Begum.
Conduct, Acknowledgement or Admission:- There can also be
situation in which although there may be no privity of contract
between the two parties, but if one of them by his conduct or
acknowledgment recognizes the right of the other, he may be
liable on the basis of law of estoppel ( Narayani Devi v. Tagore
Commercial Corporation Ltd).

 For eg., If A enters into a contract with B that A will pay Rs

5000 every month to B during his lifetime and after that to his
Son C. A also acknowledges this transaction in the presence of C.
Now if A defaults C can sue to him, although not being directly a
party to contract.
Provision for maintenance or marriage under family
arrangement:- These type of provisions is treated as an
exception to the doctrine of privity of contract for protecting the
rights of family members who not likely to get a specific share
and also to give maximum effect to the will of the testator.

For eg., If A gives his Property in equal portions to his 3 sons

with a condition that after his death all 3 of them will give Rs
10,000 each to C, the daughter of A. Now C can prosecute if any
one of them fails to obey this.
 Capacity of Parties
• Capacity to contract means a party has the legal ability to enter into a
contract.

• Capacity also means a person has to be competent as defined by law.

• Someone's capacity is determined by whether or not they have

reached the age of majority and if they are mentally capable of
understanding the applicable contract terms.
• A contract must contain these six elements:
–Offer
–Acceptance
–Consideration
–Capacity
–Intent
–Legality
Who Doesn't Meet Criteria for Capacity
• Minors
 In general, anyone under 18 years old lacks capacity.

 If he or she does enter into a contract before they turn 18, there
is usually the option to cancel while he or she is still a minor.

 There are some exceptions to this rule, however.

 Minors are allowed to enter into contracts for purchasing various

necessities like clothing, food, and accommodations. Some states
allow people under 18 to obtain bank accounts, which often
carry strict terms and stipulations.
Mental Incapacitation
If a person is not cognitively able to understand his or her
responsibilities and rights under the agreement, then they lack
the mental capacity to form a contract.

Many states define mental capacity as the ability to

understand all terms of the contract, while a handful of others
use a motivational test to discern whether someone suffers
from mania or delusions.
Intoxication
Someone who is under the influence of drugs or alcohol is
generally believed to lack capacity.

If someone voluntarily intoxicated themselves, the court may

order the party to uphold the obligation.

This is tricky because many courts have also agreed a sober

party shouldn't take advantage of an intoxicated person.
 Free consent
• According to Section 13 of the Indian Contract Act,
1872 consent means when both parties agree to a thing in
the same sense of mind or unison of mind.

• The principle of consensus-ad-idem

• Illustration:- “A” and “B” are the two parties in a contract. It

was seen that there was some crisis and “A” had put a plan
forward to solve it. “B” after being made aware of this fact
and analysed that it was the perfect solution, agreed to it. In
this case, both parties showed their consent.
 Elements Vitiating Free Consent
• Coercion (Section 15)
Coercion means using force to compel a person to enter into a
contract. So force or threats are used to obtain the consent of the
party under coercion, i.e it is not free consent. Section 15 of the
Act describes coercion as:

committing or threatening to commit any act forbidden by the law in

the IPC
unlawfully detaining or threatening to detain any property with the
intention of causing any person to enter into a contract

For example, A threatens to hurt B if he does not sell his house to

A for 5 lakh rupees. Here even if B sells the house to A, it will not
be a valid contract since B’s consent was obtained by coercion.
•Undue Influence (Section 16)
Section 16 of the Act contains the definition of undue influence. It
states that when the relations between the two parties are such
that one party is in a position to dominate the other party, and uses
such influence to obtain an unfair advantage of the other party it
will be undue influence.

The section also further describes how the person can abuse
his authority in the following two ways:-

When a person holds real or even apparent authority over the other
person. Or if he is in a fiduciary relationship with the other person
He makes a contract with a person whose mental capacity is affected
by age, illness or distress. The unsoundness of mind can be temporary
or permanent

Say for example A sold his gold watch for only Rs 500/- to his
teacher B after his teacher promised him good grades. Here the
consent of A (adult) is not freely given, he was under the influence
of his teacher.
•Fraud (Section 17)
Fraud means deceit by one of the parties, i.e. when one of the
parties deliberately makes false statements. So the
misrepresentation is done with full knowledge that it is not true, or
recklessly without checking for the trueness, this is said to be
fraudulent. It absolutely impairs free consent.
So according to Section 17,  a fraud is when a party convinces
another to enter into an agreement by making statements that are:-

suggesting a fact that is not true, and he does not believe it to be true
the active concealment of facts
a promise made without any intention of performing it
any other such act fitted to deceive

Let us take a look at an example. A bought a horse from B. B claims

the horse can be used on the farm. Turns out the horse is lame and
A cannot use him on his farm. Here B knowingly deceived A and this
will amount to fraud.
•Misrepresentation (Section 18)
Misrepresentation is also when a party makes a representation
that is false, inaccurate, incorrect, etc.

The difference here is the misrepresentation is innocent, i.e.

not intentional. The party making the statement believes it to be
true. Misrepresentation can be of three types:

A person makes a positive assertion believing it to be true

Any breach of duty gives the person committing it an
advantage by misleading another. But the breach of duty is
without any intent to deceive
when one party causes the other party to make a mistake as
to the subject matter of the contract. But this is done
innocently and not intentionally.
 Quasi-Contract
• Quasi-contract refers to the obligation of the contract created
out of the order by court with the aim of not letting one party to
get unfair benefit out of the situation at the expense of other
parties where there is the absence of initial agreement among
the parties and there is a dispute between them.

• Examples of Quasi-Contract:- A person orders some perishable

items online by providing his address and paid for the same. At
the time of the delivery of the goods, the delivery man delivers
it to the wrong address. The receiving party then, instead of
denying the delivery, accepts the order and consumes the same.
 Features of quasi contract
• The features are as follows:
Usually, the quasi-contracts provide the right to the
money.
There is an absence of the contract or the mutual
consent among the parties, and thus it is imposed
by the law and is not the outcome of any
agreement.
They are based on the concept of equity, good
conscience, justice, and principles of natural justice.
 Types of Quasi-Contract
• #1 – Section 68
It states that in case there is a person who is not
capable for entering into any contract, and the
supplies are provided to him or to anyone to
whom the incapable person is bound legally to
support by the third party, then the supplier third
party is entitled to recovering the price of such
supplier from the incapable person’s property.
#2 – Section 69
It states that in case there is a person who has an interest in
payment of money and pays on behalf of another person who
is bound to pay by the law, then the person who made the
payment is entitled to get reimbursement by another party
(on behalf of whom he has paid).

#3 – Section 70
It states that in case a person does anything for the other
person lawfully or gives the delivery of something without
intending to do the same gratuitously where the receiving
party has enjoyed the benefits of the same. Then such a
receiving party is bound to give compensation to the former
party.
#4 – Section 71
It states that in case there is a person who finds goods that
belongs to another party and takes such goods into his
custody, then the former has responsibility the same as that of
a bailee.

#5 – Section 72
It states that in case there is a person who has been paid or
delivered mistakenly or under the coercion, then he must
repay or must return the same back.
Legality of object
What is Performance of Contract?
• The term ‘Performance of contract‘ means that both, the
promisor, and the promisee have fulfilled their respective
obligations, which the contract placed upon them.

• For instance, A visits a stationery shop to buy a calculator. The

shopkeeper delivers the calculator and A pays the price. The
contract is said to have been discharged by mutual performance.

• Section 27 of Indian contract Act says that

• The parties to a contract must either perform, or offer to
perform, their respective promises, unless such performance is
dispensed with or excused under the provisions of this Act, or any
other law.
 Types of Performance
• Actual Performance
– When a promisor to a contract has fulfilled his obligation in
accordance with the terms of the contract, the promise is said to
have been actually performed.

– Actual performance gives a discharge to the contract and the

liability of the promisor ceases to exist.

– For example, A agrees to deliver10 bags of cement at B’s factory

and B promises to pay the price on delivery. A delivers the cement
on the due date and B makes the payment. This is actual
performance.
– Actual performance can further be subdivided into substantial
performance, and partial Performance
•Substantial Performance
This is where the work agreed upon is almost finished. The
court then orders that the money must be paid, but deducts
the amount needed to correct minor existing defect.

Substantial performance is applicable only if the contract is

not an entire contract and is severable.

The rationale behind creating the doctrine of substantial

performance is to avoid the possibility of one party evading
his liabilities by claiming that the contract has not been
completely performed.

However, what is deemed to be substantial performance is a

question of fact to be decided in both the case. It will largely
depend on what remains undone and its value in comparison
to the contract as a whole.
Partial Performance
This is where one of the parties has performed the contract,
but not completely, and the other side has shown willingness
to accept the part performed.

Partial performance may occur where there is shortfall on

delivery of goods or where a service is not fully carried out.

There is a thin line of difference between substantial and

partial performance. The two following points would help in
distinguishing the two types of performance.
•Attempted Performance
When the performance has become due, it is sometimes sufficient
if the promisor offers to perform his obligation under the contract.

This offer is known as attempted performance or more commonly

as tender. Thus, tender is an offer of performance, which of course,
complies with the terms of the contract.

If goods are tendered by the seller but refused by the buyer, the
seller is discharged from further liability, given that the goods are in
accordance with the contract as to quantity and quality, and he may
sue the buyer for.breach of contract if he so desires.

The rationale being that when a person offers to perform, he is

ready, willing and capable to perform. Accordingly, a tender of
performance may operate as a substitute for actual performance,
and can effect a complete discharge.
 Termination of contract
• Terminating a contract means legally ending the
contract before both parties have fulfilled their
obligations under the terms of the contract.

• There are a variety of reasons why a party can

terminate a contract.

• When and how the contract is terminated will

determine whether either party has any liability for
breach of the contract before it was terminated. 
Legal Remedies for Termination of Contracts

• Suit for breach of contract: 

– A suit for breach of contract can be instituted when
either party breaches an enforceable agreement.

– The remedies can be obtained in the form of damages,

restituting the suffering party, rescinding the contract, or
ordering the breaching party to perform the contract.

– These damages shall include the compensation given for

financial losses caused by a breach of contract.
•Damages
Under Section 73 of the Indian Contract Act, any party can claim
compensation for loss or damages caused to them in the normal
course of business if the other party breaches it.

The liquidated damages are pre-decided by the parties while

forming the contract. The unliquidated damages are assessed and
determined by the courts or appropriate authorities after the
contract is breached.

The general aim of an award of damages for breach of contract is

to compensate the innocent party for the actual loss suffered and
to put the party back in the same position as it was before the
formation of the contract.

The damages incurred are assessed as at the date of the breach of

contract. These damages may be for the pecuniary loss, non-
pecuniary, and nominal damages. 
•Specific Performance
Specific performance is an equitable and discretionary remedy
given by the court in case of breach of contract, which compels the
breaching party to perform a contractual obligation.

 It is generally awarded when the required obligation is unique and

difficult to value. It may be ordered when the property is not an
ordinary article of commerce or consists of goods which are not
easily obtainable in the market. 
•Injunction
Injunctive relief is a legal order that either makes it mandatory for
the defaulting party to perform specific obligations or prohibits the
defaulting party from performing certain tasks.

 It is also at the discretion of the court and can be ordered on an

interim basis or a final basis. A common instance of interim
injunctive relief is an order restraining the party from dealing in
certain property until the substantive dispute has been concluded. 
•Indemnity
Indemnity clauses are the contractual provisions that allow the
parties to manage the risks attached to a contract by making one
party compensate for the loss suffered by the other, due to specific
events.

An indemnity may be claimed for losses arising on account of the

conduct of a third party.

The damages, the amount paid under the terms of the agreement,
legal costs of judgment, are some of the claims which Indemnity
holders can include in its claims. 
 SALE OF GOODS ACT 1930
• The sale of Goods Act deals with ‘Sale of Goods
Act,1930,’contract of sale of goods is a contract
whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a
price.”

• ‘Contract of sale’ is a generic term which

includes both a sale as well as an agreement to
sell.
 Essential  elements of Contract of sale
•  Seller and buyer
– There must be a seller as well as a buyer.’Buyer’ means a person
who buys or agrees to buy goods[Section 2910].’Seller’ means a
person who sells or agrees to sell goods [Section 29(13)].

• Goods
– There must be some goods.’Goods’ means every kind of
movable property other than actionable claims and money
includes stock and shares,growing crops,grass and things
attached to or forming part of the land which are agreed to be
severed before sale or under the contract of sale[Section 2(7)].
•Transfer of property
Property means the general property in goods,and not merely a
special property[Section 2(11)].

General property in goods means ownership of the goods. Special

property in goods means possession of goods.

Thus,there must be either a transfer of ownership of goods or an

agreement to transfer the ownership of goods.The ownership may
transfer either immediately on completion of sale or sometime in
future in agreement to sell.

•Price
There must be a price. Price here means the money consideration for
a sales of goods[Section 2(10)].When the consideration is only
goods,it amounts to a ‘barter’ and not sale.When there is no
consideration ,it amounts to gift and not sale.
•Essential elements of a valid contract
In addition to the aforesaid specific essential elements,all the
essential elements of a valid contract as specified under
Section 10 of Indian Contract Act,1872 must also be present
since a contract of sale is a special type of a contract.
Differences Between Sale And Agreement To
Sell
 Contractual Conditions vs. Warranties
• Many contracts include either conditions or warranties,
sometimes both.

• They're not required parts of a contract. However, parties

often include them to clarify what they expect of one another.

• There are major differences between the two, but each has
important implications for the parties' duties and rights.

• Differences include the following:

Conditions are considered more important stipulations in the
development of the contract. Warranties are of lesser
importance.

A condition must be performed prior to the completion of

another action. A warranty, by contrast, is essentially a promise
that the facts a buyer gives a seller are genuine.

It's not possible for a contract of sale to be fulfilled unless the

conditions are fulfilled. With warranties, this stipulation is a
secondary concern because it's possible for a contract to be
fulfilled without the warranty being fulfilled.

The objective of the agreement is directly associated with

conditions. Warranties are simply subsidiary provisions that are
related to the contract's objective.
If someone breaches a condition, the contract may be terminated.
If someone breaches a warranty, the other party can claim damages
for the breach.

Conditions are imperative; otherwise, a contract can be denied.

Contracts aren't renounced just because warranties aren't met.

In certain situations, a condition breach might be approached as

one of warranty. However, a warranty breach can't ever be
approached as a condition breach.

A possible remedy for a condition breach is to repudiate the

contract and claim damages. The only possible remedy for a
warranty breach is claiming damages, not canceling the contract.

A condition breach deprives the non-breaching party of the whole

contract benefit. Any breach that doesn't deprive it of the whole
benefit is simply a warranty breach.
 Who is unpaid seller?
• He is the seller to whom:-
– 1. Whole of the price is not paid
– 2. Conditional payment

• Bill of exchange/ promissory note/ cheque has been received

by seller but it dishonours.

• Till the time bill of exchange/ promissory note/ cheque is

with the seller so, till that time he is only called as seller but
when any of the mentioned instruments dishonours then
after this seller is called unpaid seller.
 Rights of unpaid seller against buyer
• Suit for the price
– When any goods are passed on to the buyer and the buyer has
wrongfully neglected or refused to pay as per the terms and
conditions of the contract, the seller may sue him as per the Section
55(1) because once the property has been passed the buyer is bound
to pay the price.

– But in the case due date of payment has been passed and goods had
not been delivered yet, the seller can sue the buyer for the wrongful
neglect or refusal on his part according to clause 2 of Section 55.

– In case the price is due in foreign currency the damages must be

calculated at the rate of exchange prevailing at the time when the
price was due not on the judgement date.
Suit for damages
In case there is a wrongful refusal on the part of buyer for
acceptance of goods and payment of money, the seller can
sue him for damages of non-acceptance as per Section 56. For
calculating the quantum of damages Section 73 and 74 of the
Indian Contract Act applies.

In case the goods have a ready market, the seller has to resell
the goods and buyer have to pay the losses if incurred. If the
seller does not resell the goods the difference between
contract and market price at the day of breach is taken as a
measure for damages. If the difference between them is nil
seller gets nominal value.
•Suit for interest
As stated under Section 61, where there is a specific
agreement between buyer and seller with regards to interest
on the price of goods from the date on which payment
becomes due, the seller may recover interest from a buyer. But
if there were no such agreement the seller may charge interest
from the day he notifies the buyer.

If there is no contract to the contrary, the court of law may

award interest to the seller at such rate as it thinks fit on the
amount of the price from the date on which amount is payable.
•Repudiation of the contract before the due date
According to Section 60, the rule of anticipatory breach
contract applies, wherein, if buyer repudiates the contract
before the date of delivery the seller can consider the contract
as rescinded and can sue for damages of the breach.

According to this Section, if one party repudiates before due

date other has two courses of action. Either he may
immediately accept the breach and bring the action of
damages the contract is rescinded and damages will be
assessed according to the prices then prevailing or he can wait
for the date of delivery. In the second case, the contract is
open at risk and will be a benefit to both parties. May be the
party changes is mind and agree to perform and damages will
be assessed according to prices on the day of delivery.
 Rights of unpaid seller against goods
• Right of possession/ lien
– If the buyer fails to pay the price within the decided time, then
unpaid seller has the right to keep the goods in his possession and
he can refuse to deliver the goods until the due payment is paid.

 When right of possession can be exercised:-

– When goods are sold on cash basis, but payment is unpaid
– When goods have been sold on credit basis and the term of credit
has expired
– When the buyer becomes insolvent even within the decided
period for payment
– So, far as the goods are in the possession of unpaid seller, he can
exercise this right. If goods are lost/ given up then right of
possession/ lien is also lost/ given up
Termination of Right of Possession
 By delivery of goods to the buyer/ his agent
By delivery of goods to the carrier/ courier company
By waiver

This means that it’s specifically mentioned in the contract

that seller can’t retain the possession of the goods even if the
price has not been paid

When buyer has obtained the possession of goods lawfully

•Right of stoppage of goods in transit
If a buyer fails to pay the price within the decided time, then
unpaid seller has the right to stop the goods in transit.

Conditions for stoppage of goods:-

When seller is unpaid either wholly or partially
 When the buyer becomes insolvent
 Goods must be in the course of transit- This means that goods
must not be in the possession of the seller and have not
reached the buyer’s possession as well

Termination of Transit
By delivery to the buyer/ his agent
Interception by the buyer (Interception means the act of
catching/ receiving)
When buyer or his agent obtains the delivery of the goods
before their arrival at the appointed destination hence, the transit
comes to an end

 Acknowledgement to the buyer by the carrier/ courier

company that they are holding the goods on buyer’s behalf,
then also transit comes to an end
Part delivery of goods

If part of the goods are delivered to the buyer then the transit
comes to an end for the remainder of the goods as well
•Right of resale
The unpaid seller has the right to resell the goods.

Conditions for resale:

 When goods are of perishable nature- Then unpaid seller
can resell them immediately without the notice to the buyer.
But in case of non-perishable items unpaid seller needs to
send notice to the buyer for reselling them
Where unpaid seller gives the notice to buyer and buyer still
don’t pay for it
Where the right of resale is reserved/ mentioned in the
contract
 If contract clearly specifies that reselling can’t be done or vice
versa
 Buyer becomes insolvent
Buyer fails to pay the price of the goods