CONTRACT ACT 1872

• It extends to the whole of India.

• It came into force on the first day of September,

1872
 Introduction
• Law of contract upon which the super structure of business is built

• All contracts are based on agreement which is either express or

implied

• It is basis of other branches of business laws.

• Sale of goods Act, NI Act, MRTP Act, TRIPS

• Hence study of law of contract precedes the study of all other laws
relating to trade and industry
 CONTRACT

• The word ‘Contract’ is derived from the latin

‘Contractum’ meaning drawing together

• According to sec.2(h), CONTRACT may be defined as

“An Agreement enforceable by law ”

• These agreements creates Rights and Obligations

between the Parties which can be claimed in the Court
of Law.(Legal Obligation)
 THREE MAJOR COMPONENTS

1. AGREEMENT

2. OBLIGATION

3. ENFORCEABILITY

Contract = An Agreement + its Enforceability

 AGREEMENT
• The contract is formed only on the basis of agreement. It is a
combined effect of offer and acceptance.
• Its meeting of minds

AGREEMENT= OFFER+ ACCEPTANCE

• According to section 2(e), Agreement is a promise or set of

promises forming consideration for each other.
• Two Characteristics: Plurality and Consensus-ad-idem
• Consent: Two or more persons are said to consent when they
agree upon the same thing in the same sense.
• Agreement + Legal Obligation Contract

• Agreement + Social Obligation Contract

 Prospecting

• Agreements must be performed by consenting parties

• Who will ensure that agreements are fulfilled?

• Governing mechanism of society, i.e., Courts

 Consideration and contract
• The benefit each party promises the other is consideration

• Agreements which have consideration for both the parties are

contracts

• Not all agreements are contracts

• Material exchange becomes a component of the contracts

• Social relationships are seen distinctly from business relationships

• Benefit party gets from other party or detriment or obligation that

the other party takes up, is the consideration for the first party
 Contract with Mischief
• Contracts tainted with illegality or lack of capacity or
similar vice are not be enforced

• Contracts caused by coercion, fraud, misrepresentation

or undue influence can be set aside by the innocent
party

• Spurious medicine business

• Contract with minor

 Compensation
• If the contract is not performed, a money equivalent can
be worked out for the losses incurred by the injured
party

• Infringing party to pay for the losses to the injured party

• Hiring a public address system

 Offer, Acceptance and Meeting of minds
• Communication and meeting of minds

• Offer and Acceptance

- An agreement is about meeting of minds. It can be formed

when one party puts up and offer and other person accepts
it.

• Rejection of offer

- An offer can be accepted or rejected. If rejected then its

end of offer
 Offer, Acceptance and Meeting of minds
• Acceptance of an offer: A buying Laptop from B

• Offer: Express and Implied: A person making it must

intend to get into contractual relationship. Ex: I may or
usually.

• Implied communication: Walking into shop and pointing

at a product. Ex. Nodding or waving for Auto
• Contracts formed through spoken or implied offers and

acceptances are as valid as written offer and acceptance

• Advertising of products is not an offer. Ex. Airlines

• Interpreting communication is important in contract

• E-Mail.
ESSENTIALS ELEMENTS OF A VALID CONTRACT

1) Two or More parties

2) Offer (Definite) and Acceptance (absolute & Unconditional)

3) Intension to create a Legal Relationship (Balfor and balfor)-

Rose and Frank Co. v/s Crompton n bros

4) Lawful consideration (Injury to person or property, immoral or

against public policy)

5) Capacity of parties (Major, Sound mind)

ESSENTIALS ELEMENTS OF A VALID CONTRACT

6) Free Consent (No Coercion, undue influence, Fraud,

Misrepresentation and Mistake)

7)Writing and Registration and Duly stamped (not Oral Contract)

8) Certainty (proper terms and conditions)- To sell cement

9) Possibility of the Performance (it should not be impossible)-

discover treasure

10) Must not have been disqualified by any law-restraint of

marriage, restraint of trade are void.
 CLASSIFICATION OF CONTRACTS

ON THE BASIS OF

EXECUTION ENFOECEABILITY
CREATION
(PERFORMANCE) (VALIDITY)
(FORMATION)
-EXECUTED -VALID
- EXPRESS

-EXECUTORY - VOID
-IMPLIED

-PARTLY - VOIDABLE
- QUASI
- ILLEGAL
 ON THE BASIS OF FORMATION
1. EXPRESS CONTRACT-

Express contract is one which is made by words spoken or

written at the time of formation

Example1
X says to Y, will you buy a car for Rs. 100000? Y says to X, I
am ready to buy your car for Rs. 100000. It is an express
contract made orally.  

Example 2 
X writes a letter to Y, I offer to sell my car for Rs. 100000 to
you. Y send a letter to X, I am ready to buy your car for Rs.
100000. It is an express contract made in writing.
2. IMPLIED CONTRACT

An implied contract is one which is inferred from the acts or

conduct of the parties or from the circumstances of the cases.

Example :

X, a coolie in uniform picks up the bag of Y to carry it from

railway platform to the taxi stand, without being told by Y to
do so and Y allows him. In this case there is an implied offer
by the coolie and an implied acceptance by the passenger.
Now, there is an implied contract between the coolie and the
passenger and he is bound to pay for the services of the
coolie.
3. QUASI CONTRACTS

• These contacts are based on the principles of Justice and

Equity.
• Quasi means ‘ as if ’ or ‘ similar to ’
• Also called as ‘ Implied Contracts’
• It is just like a Contract as it also creates legal obligations.
• But the legal obligation created by Quasi Contract do NOT rest
on any Agreement, but are IMPOSED BY LAW.

Example:
Where certain  books are delivered to a wrong address then
they are under an obligation to either pay for them or return
them.
ON THE BASIS OF PERFORMANCE

1. EXECUTED CONTRACT-

It is a contract where both the parties to the contract have

fulfilled their respective obligations under the contract.

Example:
X offers to sell his car to Y for Rs. 1 lakh. Y accepts X’s offer.
X delivers the car to Y and Y pays Rs. 1 lakh to X. It is an
executed contract.
 Missing boy: unilateral contract
2. EXECUTORY CONTRACT-

It is a contract where both the parties to the contract

have still to perform their respective obligations.

Example:
X offers to sell his car to y for Rs. 1 lakh.
Y accepts X’s offer. If the car has not yet been
delivered by X and the price has not yet been paid by
Y, it is an Executory contract
Tuitions.
3. PARTLY EXECUTED AND PARTLY EXECUTORY
CONTRACT: 

It is a contract where one of the parties to the contract has

fulfilled his obligation and the other party has still to perform
his obligation.

Example:
X offers to sell his car to y for Rs. 1 lakh on a credit of 1 month.
Y accepts X offer. X sells the car to Y. Here the contract is
executed as to X and Executory as to Y.
1. VALID CONTRACT- Contract which satisfies all the
conditions prescribed by law is a valid contract.
Eg. X offers to marry Y. Y accepts X offer. This is a valid
contract.

2. VOID CONTRACT- [sec 2 (g)]

A void contract is a contract which is valid when entered
into but which subsequently became void due to
impossibility of performance, change of law or some other
reason.
Eg. X offers to marry Y, Y accepts X offer. Later on Y dies.
This contract was valid at the time of its formation but
became void at the death of Y.
 ON THE BASIS OF VALIDITY

Supervening impossibility: Becoming mad

Subsequent illegality: Ban on some goods by Govt

Repudiation of voidable contract

3. VOIDABLE CONTRACT:

• An agreement which is enforceable by law at the

option of one or more of the parties thereon but not at
the option of other or others, is a voidable contract.

• If the essential element of free consent is missing in a

contract, the law confers right on the aggrieved party
either to reject the contract or to accept it. However,
the contract continues to be good and enforceable
unless it is repudiated by the aggrieved party.
• Example

• X threatens to kill Y, if he does not sell his house for Rs. 1

lakh to X. Y sells his house to X and receives payment. Here, Y
consent has been obtained by coercion and hence this contract
is voidable at the option of Y, the aggrieved party.

• If Y decides to avoid the contract he will have to return Rs. 1

lakh which he had received from X. If Y does not exercise his
option to repudiate the contract within a reasonable time and in
the meantime Z purchases that house from X for 1 lakh in good
faith, Y cannot repudiate the contract.

Falsely representing: Sale of factory

Painting the house
Not delivering goods in time.
4. ILLEGAL CONTRACT:
• An illegal contract is unlawful.

• Such an agreement cannot be enforced by law. Thus,

illegal agreements are always Void -Ab- Initio.
(i.e. void from the very beginning)

Example: X agrees to pay Y Rs.1 lakh to kill Z. Y kills

Z and claims Rs. 1 lakh. Y cannot recover the amount
from X because the agreement between X and Y is
illegal and also its object is unlawful.
 OFFER (Proposal)
• According to Sec.2(a), when a person made a proposal, when
he signifies to another his willingness to do or to abstain
from doing something.

• One person shall signify or make proposal to the other, with

a view to obtaining assent or acceptance of that another to
that act or abstinence

• The person who makes offer is offerer or proposer

• The person to whom the proposal or offer is made is offeree

or proposee
 Rules for the valid Proposal
• Express or Implied. Ex: Public Transportation

• Terms certain and not loose or vague.

• To give rise to legal consequences and be capable of creating

legal relations. Ex: Invitation to the dinner. Rose & frank Co

v/s Crompton Bros Ltd

• An Invitation to proposal is not a proposal: Quotations, Display

of goods, Ads, catalogues of prices- Auction

-Self service Shop: offer and acceptance

• May be specific or general. Ex: Carlill v/s Carbolic Smoke Ball

• Communicated to the Proposee: Lalman Shukla vs Gauri Datt,

Reward for tracing a criminal.

• Communication of special terms.

• Should not contain a term the non compliance of which would amount
to acceptance. Felthouse v/s Bindley

• Can be made subject to any terms and conditions: Acceptance by Mail

& post.

• Two identical cross-offers don’t make a contract. Offer to sell and buy
goods..
 Lapses and Revocation of Offer
An offer lapses after stipulated or reasonable time Ex: Ramsgate
Victoria Hotel Co. vs Montefiore(Shares. 8th June and 23Nov)

An offer lapses by not being accepted in the mode prescribed, or

if no mode is prescribed, in some usual and reasonable manner

An offer lapses by rejection: Implied rejection-counter offer and

conditional acceptance. Ex: A offers & B counter offers. Sale of
house- Sale of car: to be GM in company
-Rejection is effective only when it comes to knowledge of offerer:
Letter and Telephone.
• An offer lapses by death or insanity of the offeror or the offeree
before acceptance provided and its known to offeree

• An offer lapses by Revocation- to be communicated (Consideration )

Ex: Auction bidding-acceptance-revocation-fall of hammer, Sale of
house open for some time

• Revocation of non-fulfillment of a condition precedent to acceptance.

Ex: A Sell scooter to B if B joins Lions club

• An offer lapses by subsequent illegality or destruction of the subject

matter: offer becomes illegal after its made before acceptance. Ex:
Sale of wheat by private individuals
 TYPES OF OFFER

• Express offer
• Implied offer
• Specific offer
• General offer
• Cross offer
• Counter offer
• Standing offer
• Express offer - When offer is given to another
person either in writing or in oral.

• Implied offer - When offer is given to another

person neither in writing nor in oral.

• Specific offer - When offer is given to a specific

person.

• General offer - When offer is given to entire world

at a large.(Carlill Vs. Carbolic smoke ball Co.,)
• Cross offer - When both the persons are making
identical offers to each other in ignorance of other’s
offer.

• Counter offer - When both the persons are making

offers to each other which are not identical in
ignorance of other’s offer.

• Standing offer - An offer which remains

continuously enforceable for a certain period of
time.
ACCEPTANCE
ACCEPTANCE
According to sec.2(b), when a person made a
proposal to another to whom proposal is made, if
proposal is assented there to, is called acceptance
 LEGAL RULES FOR ACCEPTANCE
Acceptance must be given only by the person to whom the offer is
made(Boulton vs Jones): A sells business to B and C is a customer.

 Acceptance must be absolute and unqualified.

- Deviated acceptance is counter offer. Ex: L offered scooter to M. M
makes partial payment.

 Acceptance must be expressed in some usual and reasonable

manner unless the proposal prescribes the manner in which it is to
be accepted. Ex: Lighting a match can also be acceptance
- Silence is not a mode of acceptance.

 Mental acceptance not evidenced by words or conduct is

ineffectual Ex. Felthouse vs Bindley.
 Acceptance must be communicated by the acceptor. (Powell Vs.
Lee)
-Ex: Selection of P as head master of School

Acceptance must be given within a reasonable time and before the

offer lapses or is revoked

 Acceptance must succeed the offer

-Ex: Allotment of shares before application

 Acceptance must be by the person if it is made specific and by

anybody if it is general.

Rejected offers can be accepted, if renewed. Ex. Hyde v/s Wrench

CONSIDERATION
According to sec 2(d) consideration is defined as
“when at the desire of the promisor, or 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 an act or abstinence or promise
is called a consideration for the promise”
When a party to an agreement promises
to do something he must get “something”
in return . This “something” is defined as
consideration.
 Components of Consideration
• The act or abstinence or promise which forms the
consideration for the promise, must be done at the desire of the
promisor

• It must be done by the promisee or any other person

• It may have been already executed or is in the process or may

be still executory

• It must be something to which law attaches a value

 Essentials of Consideration
Consideration must move at the desire of Promisor.

 Services rendered voluntarily or at the desire of third party

 Ex: 1. B’s house on fire, A helps it.

 D constructs market for DC- Shopkeepers agreed to pay commission

 B requests A to sell and deliver goods on credit. C as guarantor

Consideration may move from the promisee or any other person:

 Chinnayya vs Ramayya. A old lady gifts R, daughter certain property to pay annuity
to C

 Stranger to contract cannot sue:A mortgage property to B to clear A’s

debt to C( Exception is there as to trust and Family settlement.)
Consideration may be past, present or future and it may be
positive or negative act
• Consideration may consist of an act or abstinence
- Past: A teaches son of B in Jan, B promises to pay in Feb for service
- Present: A sells & delivers book and B promises to pay in future
- Future: A sells goods on future date, B promises to pay on delivery date

• Consideration must be ‘something of Value’

-Inadequacy of consideration doesn’t matter
-Consideration must be real:
Physically impossible: making dead man alive or run 100 miles an hour
Legally impossible
Uncertain consideration: “ as shall be deemed right”
Illusory consideration: Perform a public duty or to perform contract already
made
 Contingent Contract

Section 31 of the Contract Act

defines “ A Contingent contract is a
contract to do or not do something, if
some event, collateral to such
contract does or does not happen”
 Examples of Contingent Contract

• A contracts to sell B 10 bales of cotton for Rs. 20k, if the

ship by which they are coming returns safely

• A promises to give loan of Rs. 1k to B, if he is elected the

president of a particular association

• A promise to pay Rs. 50k to B if a certain ship does not

return, of course after charging usual premium

• C advances loan of Rs. 10k to D and M promises to C that if

D does not repay the loan, M will do so
 Essential of CC

• The performance of such contract depends upon the

happening or non-happening of some future uncertain event

• The future uncertain event is collateral i.e., incidental to the

contract
Performance of a Contract
• Fulfilling of their respective legal obligation created
under the contract by both the Promisor and the
Promisee

• Promisee can demand the performance

• A third party can not demand performance of the

contract even it was made for his benefit
- A promise to B to pay C Rs. 1000/-
• In case of the death of Promisee, legal
representatives are entitled to enforce the
performance of the contract against promisor
 Who Performs?
• Promisor himself where requires skills, taste or credit.

• Promisor or his agent(In case of impersonal): A may lend money

to B by himself or the third party

• Legal Representative

• Performance by the third person: If agreed by the Promisee it

discharges promisor of his obligation.

 Joint Promises

• Several Joint Promisors and Single Promisee

• Single Promisors makes promise to several Promisees

• Several Promisors promise several Promisees

 Who performs Joint Promises
• All promisors should jointly fulfill the promisee

• Any one or more of joint promisors may be compelled to perform

in case of absence of express agreement

-Calcutta High court and Madras High Court verdict on decree

• Right of contribution inter-se between joint promisors

-Equal contribution from all the promisors.

• Sharing of loss by default in contribution by promisors

• Effect of release of one joint promisor: if one promise relieved by

the promisee
Discharge of contract
 Discharge of contract

• Discharge of contract means termination of the

contractual relationship between the parties. A
contract is said to be discharged when it ceases to
operate, i.e., when the rights and obligations
created by it comes to an end.
 A CONTRACT MAY BE DISCHARGED

1. By performance

2. By mutual agreement or consent

3. By impossibility of performance

4. By lapse of time

5. By operation of law

6. By Breach of contract
 Discharge by performance

• Performance means the doing of that, which is required by the

contract.

• Discharge by performance takes place when the parties of the

contract perform within the time and in the manner prescribed.

• In such a case, the parties are discharged and the contract comes to
an end. But if only one party performs the promise, he alone is
discharged.

• Such a party gets a right of action against the other party who is
guilty of breach.
• Performance of a contract is the most usual mode of
discharge.

• It may be by:

- Actual performance and

- Attempted performance or tender.
 ACTUAL PERFORMANCE
• When both the parties perform their promises, the contract is
discharged.

• Performance should be complete, precise and according to

the terms of the agreement.

• Most of the contract are discharged by performance in this

manner.
Attempted Performance or Tender

Tender is not actual performance but is only an

offer to perform the obligation, but the promisee
refuses to accept the performance.
 Essentials of Valid Tender
• It must be unconditional. Ex: A debtor of company B,
allotment of shares

• It must be made at proper time and place. Ex: A tenant of B

offers rent marriage party

• It must be of the whole obligation: Not Installments but whole

amount

• If its delivery of goods then reasonable time to be given for the

inspection of goods:
• It must be made by a person who is in a position and willing

perform: Not a minor and an idiot

• It must be made to the proper person: Tender to stranger is invalid

• Several joint promisees, offer to any one of them is valid tender

• Incase of tender of money exact amount should be tendered. Ex:

Exact amount to be paid to conductor of bus. Or Tender Cheque.

Discharge by Mutual Agreement or Consent

Since a contract is created by mutual

agreement, it can be discharged by
mutual agreement
Types of discharge by agreement or consent

a) Novation

b) Rescission

c) Alteration

d) Remission

e) Waiver
 Novation (sec. 62)
• Novation means the substitution of a new contract for the original
contract.

• Such a new contract may be either between the same parties or

between different parties

• The consideration of new contract is the discharge of the original

contract

• Example:
A owes money to B under a contract. It is agreed between A,B and C
that B shall henceforth accept C as his debtor, instead of A. The old
debt of A and B no longer exists and a new debt from C to B has been
contracted.
 Rescission (sec. 62)
• Rescission of a contract takes place when the parties to a contract
may decide that they will forget the contract and will not bring a new
contract into existence to replace it.

• Cancellation of contract by any party or all the parties.

• Example:
X promises Y to deliver goods on 1st Oct at his go-down. And Y
promises to pay for it on 1st Nov. X does not supply the goods. Y
may rescind the contract.
 Alteration
• Alteration means a change in the terms of a contract with
mutual consent of the parties. Alteration discharges the original
contract and creates a new contract. However, parties to the new
contract must NOT change.

• Example:
X promises to sell and deliver 100 bags on 1st Oct. And Y
promises to pay on 1st Nov. Afterwards X and Y mutually
decide that the goods shall be delivered in 5 equal installments
at Z’s godown.
 Remission (sec.63)
• Remission means acceptance by the promisee of a lesser
fulfillment of the promise made.

• In other words it may be defined as acceptance of a less

than what was contracted.

• Example
A owes to B Rs 5000. A pays to B Rs 2000. B accepts
it in full satisfaction. The old debt is discharged.
 Waiver
• A waiver is the voluntary relinquishment or surrender of some
known right or privilege.

• A contractual party might waive the performance of a contractual

duty by another party. A waiver doesn't have to be written or even
spoken -- a party may waive a contractual duty by conduct.

• Example
A landlord fails to object to a tenant paying rent 10 days late
every month, he may be considered to have voluntarily waived on-
time payment by the tenant.
 Discharge By Impossibility of Performance
• Section 56, which deals with this question, mentions
two kinds of impossibility.

• Firstly, impossibility existing at the time of the

making of the contract.

• Secondly, a contract which is possible of performance

and lawful when made, but the same becomes
impossible or unlawful thereafter.
 1. INITIAL IMPOSSIBILITY
• An agreement to do an act impossible in itself is void.

• The object of making any contract is that the parties to it would

perform their respective promises.

• If a contract is impossible of being performed, the parties to it will

never be able to fulfil their object, and hence such an agreement is
void.
• Example:
 A agrees with B to discover treasure by magic. The
performance of the agreement being impossible, the agreement
is void. Similarly, an agreement to bring a dead man to life is
also void.
A contracts to marry B, being already married to C
 2. SUBSEQUENT IMPOSSIBILITY
• The performance of the contract may be possible when the
contract is entered into but because of some event, which the
promisor could not prevent, the performance may become
impossible or unlawful.

• Section 56 makes the following provision regarding the validity

of such contracts :

“A contract to do an act which after the contract is made,

becomes impossible, or by reason of some event which the
promisor could not prevent, becomes void when the act, becomes
impossible or unlawful.”
SUBSEQUENT IMPOSSIBILITY Examples..

•A music hall destroyed by fire. -Contract to sell specific crop

( Destruction of subject matter-Taylor v/s Caldwell)

•H hired a room in London from K to witness procession of king (Failure of

ultimate purpose). Krell v/s Henry

•A and B contract to marry each other. Before the time fixed for marriage,
A goes mad. The contract becomes void.
-A contracts to act at a theatre for six months in consideration of a sum paid
in advance by B. On several occasions A is too ill to act. The contract to act
on those occasions becomes void.
-An Artist losing his right arm
( Death or personal incapacity of Promisor)
SUBSEQUENT IMPOSSIBILITY Examples..

• Change of Law: Defense of India Rules

- Sale of Trees in Forest

• Outbreak of War
 Discharge by lapse of time
The limitation act, 1963 lays down that a contract should be
performed within a specified period, called period of limitation.

 If it is not performed, and if no action is taken by the promisee

within the period of limitation, he is deprived of his remedy at
law.(ie the contract is terminated)
• For example: There is a contract of loan between A and B.
Here limitation period is 3 years. After completion of 3rd year
discharge of contract takes place and debtor – creditor
relationship comes an end. Thus it becomes time barred debt
which cannot be recovered by means of legal proceedings.
 Discharge By Operation of Law
• A contract may be discharged independently of the wishes of the
parties, i.e., by operation of law. This includes discharge–

a)By death (in the case of contracts for personal service)

b)By insolvency ( Court passes the Order of discharge)
c)By unauthorized alteration of the terms of a written agreement
d) Merger ( inferior right merges with superior right)
e)By the identity of promissor and promisee
For example: X has drawn a bill on Y. Here X has right to
collect amount on the bill and Y has liability to pay. There after X
has endorsed the bill to Z. Where Z has got the right and liability
is with Y. Assume that Z has endorsed the bill to Y. Now right as
well as liability are with Y. This situation discharges the contract
 DISCHARGE BY BREACH OF CONTRACT
• When a party having a duty to perform a contract fails
to do that, or does an act whereby the performance of
the contract by him becomes impossible, or he refuses
to perform the contract, there is said to be a breach of
contract on his part.

• On the breach of contract by one party, the other party

is discharged from his obligation to perform his part of
the obligation.
• He also gets a right to sue the party making the
breach of contract for damages for the loss
occasioned to him due to the breach of contract.

• The breach of contract may be either ACTUAL, i.e.,

non-performance of the contract on the due date of
performance, or ANTICIPATORY( Express and
Implied), i.e., before the due date of performance has
come.
• Example

A is to supply certain goods to B on 1st January. On

1st January A does not supply the goods. He has made
actual breach of contract.

On the other hand, if A informs B on 1st December

that he will not perform the contract on 1st January
next, A has made anticipatory breach of contract
Anticipatory breach can take place in two ways
1. Expressly by words spoken or written
- Unconditional & Absolute

2. Impliedly by the conduct of one of the parties

 Effect of an Anticipatory breach
1. Sue the other party for damages for breach
immediately without waiting till due date

2. Not to rescind but wait for the time of performance

and then hold the other party responsible for the
consequences of non-performance.
-Two options available to the aggrieved party.
REMEDIES OF BREACH OF CONTRACT

• A Remedy is the course of action available to

an aggrieved party (ie the party not at default)
for the enforcement of a right under a contract.
 Remedies for Breach of Contract

• Cancellation or Rescission

• Damages

• Quantum Meruit

• Specific performance

• Injunction
 Cancellation or Rescission

• When the contract is broken by one party, the other

party is free to rescind and refuse further performance.

• In such a case aggrieved party is discharged from all

the obligation under the contract and is entitled to
claim compensation sustained because of the non-
performance of the contract.
• Example:

• A, a singer contracts with B, manager of theatre, to

sing at his theatre every night in every week during
the next two months.
• B promises to pay her Rs. 1K for each night
performance.
• On the sixth night A willfully remains absent from
the theatre
• B in consequence rescinds the contract.
• B is entitled to claim compensation for the damage
which he has sustained through the non-fulfilment of
the contract.
 Suit for Damages
• Here the aggrieved party will go to the court of law
and ask for damages or compensation for the breach of
contract.

• They are monetary compensation allowed for the loss

suffered by the aggrieved party

• The object is not to punish the party but to make good

the financial loss suffered by the aggrieved party.
 Damages are of four kinds

• General or ordinary damages

• Special damages

• Vindictive or exemplary damages

• Nominal damages
 General or Ordinary damages

• In a contract for sale of goods, the measure of

ordinary damages is the difference between

contract price and the market price of such

goods on the date of breach

• Example:

• On 1st Dec, X contracted to sell and deliver 50 tons of

wheat @ Rs 8000 per ton to Y on 1st Jan. On 20th Dec,
Y afterwards, contracted to sell those goods to Z @ Rs
10000 per ton. X failed to deliver on 1st Jan, when
price of wheat was 9500 per ton.

• Y is entitled to recover Rs 75000 and not the profit as

it is the indirect consequence of the breach of contract.
 Special damages
• It would be the compensation for the special losses
caused to the aggrieved party by the special
circumstances attached to the contract.

• The phrase “special damages” is often used

interchangeably with the term “consequential
damages”.  This is to indicate that the damages are the
“consequence” of a contractual breach, though they
might not have been directly caused by the 
breach of contract. 
• Example:

• A, a builder, contracts to erect and finish a house by 1st Jan,

in order that B may give possession of it at that time to C. A is
informed of the contract between B and C. A builds the house
so badly that before 1st Jan it falls down, and has to be rebuilt by
B, who, in consequence, loses the rent which he was to have
received from C, and is obliged to make compensation to C for
the breach of his contract.

• A must make compensation to B for the cost of rebuilding, for

the rent lost and for the compensation made to C.
 Punitive or Vindictive Damages

Punitive damages are damages that

punish the wrongdoer in a breach of
contract lawsuit. They aren't based on
actual economic loss like compensatory
damages.
Example:

i) Breach of promise to marry (damages are

calculated on mental injury sustained)

ii) wrongful dishonour of cheque by a banker

 Nominal damages
• Nominal damages are awarded where aggrieved party
has been injured but did not incur any financial
losses. They are not intended to compensate the victim
but rather are awarded to vindicate aggrieved party’s
rights. 

• These are called nominal damages, because they are

very small, say one rupee or one dollar.
Example:

• An injured, who proves that a defendant's

actions caused the injury but fails to submit
medical records to show the extent of the injury
may be awarded only nominal damages. The
amount awarded is generally a small, symbolic
sum, such as one hundred rupees
 Suit for Specific performance
• It means demanding the court’s direction to the
defaulting party to carry out the promise according to
terms of the contract.

Example:
• X agreed to sell an old painting to Y for Rs 50,000.
Subsequently, X refused to sell the painting. Here, Y
may file a suit against X for the specific performance
of the contract.
 Suit for Injunction
• It means demanding for court’s stay order.

• Injunction means an order of the court which prohibits

a person to do a particular act.

• Where a party to a contract does something which he

promised not to do, the court may issue an order
prohibiting him from doing so.
Example:

• W agreed to sing at L’s theatre only, during

the contract. But he makes contract with Z to
sing at another theatre and refused to perform
the contract with L.

• W could be restrained by injunction from

singing for Z.
 Suit for Quantum Meruit
• Quantum Meruit means ‘as much as earned’
• Right to Quantum Meruit means a right to claim the
compensation for the work already done.

Example:
• C an owner of a magazine, engaged P to write a
story to be published by installments in his magazine.
After a few installments were published, the
publication of the magazine was stopped. It was held
that P could claim payment for the part already
published.