indian contract
TRANSCRIPT
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Indian Contract ActIndian Contract Act
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CONTRACTCONTRACT
A contract is an agreement made betweenA contract is an agreement made between
two or more parties which the law willtwo or more parties which the law will
enforce.enforce.
A Contract is an agreement enforceable byA Contract is an agreement enforceable by
law. sec 2(h)law. sec 2(h)
CONTRACT = AGREEMENT + ENFORCEABILITYCONTRACT = AGREEMENT + ENFORCEABILITY
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AGREEMEAGREEME
NTNT Every promise and every set of promises,Every promise and every set of promises,
forming consideration for each other. forming consideration for each other. sec 2(e)sec 2(e)
Agreement = Offer + AcceptanceAgreement = Offer + Acceptance
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CONSENSUS ADCONSENSUS ADIDEMIDEM
The essence of an agreement is theThe essence of an agreement is the MeetingMeeting
of the Mindsof the Minds of the parties in full and finalof the parties in full and final
agreement .agreement .
An agreement, to become a contract, mustAn agreement, to become a contract, must
give rise to agive rise to a Legal ObligationLeg
al Obligation ..
OBLIGATIOBLIGATIONON
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An OfferAn Offer
When one person signifies to another hisWhen one person signifies to another his
willingness to do or to abstain from doingwillingness to do or to abstain from doinganything, with a view to obtaining the assentanything, with a view to obtaining the assent
of that other to such act or abstinence, he isof that other to such act or abstinence, he is
said to make a proposal. Sec 2(a)said to make a proposal. Sec 2(a)
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An AcceptanceAn Acceptance
When a person to whom the proposal isWhen a person to whom the proposal ismade signifies his assent thereto, themade signifies his assent thereto, the
proposal is said to be accepted. Sec 2(b)proposal is said to be accepted. Sec 2(b)
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Some vital points :Some vital points :
All contracts are agreements but allAll contracts are agreements but all
agreements are not contracts.agreements are not contracts.
A legal obligation having its source in anA legal obligation having its source in an
agreement only will give rise to a contract.agreement only will give rise to a contract.
Law of contracts creates rights inLaw of contracts creates rights in personampersonam
nor rights innor rights in remrem ..
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Agreement VsAgreement VsContractContract An agreement is a promise or set of promises (s). A contract is
essentially an agreement, i.e., a promise or set of promise (s).
Differences
Enforceability An agreement may or may not be enforceable at law. For example,
social agreements are generally not enforceable while businessagreements are enforceable at law.
A contract is an agreement which is enforceable at law.
Effect An agreement is not always a binding on the concerned parties. A contract is always concluded and binding on the concerned parties,
Scope
All agreements are not contracts. All contracts are agreements.
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ESSENTIALS OF VALIDESSENTIALS OF VALIDCONTRACTCONTRACT Offer and acceptanceOffer and acceptance Intention to create legal relationshipIntention to create legal relationship Lawful considerationLawful consideration Capacity of partiesCapacity of parties Free and genuine consentFree and genuine consent Lawful objectLawful objectAgreement not declared VoidAgreement not declared Void Certainty & possibility of performanceCertainty & possibility of performance Legal formalitiesLegal formalities
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Free ConsentFree Consent
Consent is said to be free when it is not caused byConsent is said to be free when it is not caused by
any of the following :any of the following :
Coercion (sec 15)Coercion (sec 15) Undue Influence (sec 16)Undue Influence (sec 16)
Fraud (sec 17)Fraud (sec 17)
Misrepresentation (sec 18)Misrepresentation (sec 18) Mistake (sec 20 & 21)Mistake (sec 20 & 21)
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Coercion (sec 15)Coercion (sec 15)
Coercion is the commitment of threatening to commit any act forbiddenCoercion is the commitment of threatening to commit any act forbidden
by the Indian penal code or unlawful detaining or threatening to detainby the Indian penal code or unlawful detaining or threatening to detain
any property to the prejudice of any person whatever with the intentionany property to the prejudice of any person whatever with the intentionof causing the person to enter into an agreement.of causing the person to enter into an agreement.
Effect of coercionEffect of coercion :: An agreement under coercion is voidable at the option of the partyAn agreement under coercion is voidable at the option of the party
whose consent was so obtained.whose consent was so obtained.
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Undue Influence (sec 16)Undue Influence (sec 16) A contract is said to be induced by undue influence where the relations subsisting between theA contract is said to be induced by undue influence where the relations subsisting between the
parties are such that one of the parties is in a position to dominate the will of the other and usesparties are such that one of the parties is in a position to dominate the will of the other and uses
that position to obtain an unfair advantage over the otherthat position to obtain an unfair advantage over the other ..
Ability to dominate the will of other party :Ability to dominate the will of other party : Such a will is said to exists where a person -Such a will is said to exists where a person -
Holds a real and apparent authority over the other eg, Income tax authority andHolds a real and apparent authority over the other eg, Income tax authority andassessee, police and accusedassessee, police and accused Stands in a fiduciary relation (relation of trust and confidence)Stands in a fiduciary relation (relation of trust and confidence)
Eg. Solicitor and client, spiritual guru and devotee, husband and wifeEg. Solicitor and client, spiritual guru and devotee, husband and wife Makes a contract with a person whose mental capacity is temporarily or permanentlyMakes a contract with a person whose mental capacity is temporarily or permanently
affected by reason of age, illness or mental or bodily distressaffected by reason of age, illness or mental or bodily distress The following relationships raise the assumptions of undue influence :The following relationships raise the assumptions of undue influence :
Parent and childParent and child
Guardian and wardGuardian and ward Trustee and beneficiaryTrustee and beneficiary Religious advisors and devoteesReligious advisors and devotees Doctor and patientDoctor and patient Solicitor and clientSolicitor and client Fianc and fianceFianc and fiance
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Burden of proof:Burden of proof: The plaintiff who wants to avoid the contract entered into underThe plaintiff who wants to avoid the contract entered into under
undue influence has to establish thatundue influence has to establish that The other party was in a position to dominate the willThe other party was in a position to dominate the will
The other party actually used the influence to obtain the consentThe other party actually used the influence to obtain the consent
on the contracton the contract
The contract is unreasonableThe contract is unreasonable
Effect of undue influence :Effect of undue influence : Contract is voidable at the option at the party whose consent isContract is voidable at the option at the party whose consent is
not freenot free
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Fraud (sec 17)Fraud (sec 17)
Fraud means and includes any of the following actsFraud means and includes any of the following acts
committed by a party to a contract or connivance or by hiscommitted by a party to a contract or connivance or by his
agent with the intent to deceive or to induce a person to enteragent with the intent to deceive or to induce a person to enter
into a contract .into a contract . The suggestion that a fact is true when it is not true and theThe suggestion that a fact is true when it is not true and the
person making the suggestion does not believe it to be true.person making the suggestion does not believe it to be true.
The active concealment of a fact by a person having knowledgeThe active concealment of a fact by a person having knowledge
or belief of the factor belief of the fact
A promise made without any intention of performing itA promise made without any intention of performing it Any other act aimed to deceiveAny other act aimed to deceive
Any such act of omission as the law specially declares to beAny such act of omission as the law specially declares to be
fraudulentfraudulent
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FraudFraud
There should be a suggestion as to a factThere should be a suggestion as to a fact
The fact suggested should not be trueThe fact suggested should not be true
The suggestion should have been made by the person who does notThe suggestion should have been made by the person who does not
believe it to be truebelieve it to be true
The suggestion should have been made by the person with an intentionThe suggestion should have been made by the person with an intentionof inducing the other party to enter into the contractof inducing the other party to enter into the contract
Contracts of Uberrimae Fidei :Contracts of Uberrimae Fidei :
Contracts on which law imposes a special duty to act with utmost faith toContracts on which law imposes a special duty to act with utmost faith to
disclose all material information. eg. Contracts of insurance, Companydisclose all material information. eg. Contracts of insurance, Companyprospectus inviting public to subscribe for shares, contract of sale ofprospectus inviting public to subscribe for shares, contract of sale of
land, contract of family arrangementsland, contract of family arrangements
Effects of fraud:Effects of fraud:
Voidable contractVoidable contract
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Misrepresentation (secMisrepresentation (sec18)18)
Misrepresentation is the innocent or unconscious presentation of wrongMisrepresentation is the innocent or unconscious presentation of wrongfacts by one party which are taken into account by the other party beforefacts by one party which are taken into account by the other party beforeentering into a contract.entering into a contract.
Sec 18 defines misrepresentation to be existingSec 18 defines misrepresentation to be existing When a person positively asserts that a fact is true when his informationWhen a person positively asserts that a fact is true when his informationdoes not warrant it to be, though he believes it to be so .does not warrant it to be, though he believes it to be so .
The misrepresentation should be made before the conclusion of theThe misrepresentation should be made before the conclusion of thecontract and with the intention of inducing the other party to act upon itcontract and with the intention of inducing the other party to act upon it
The other party should have acted upon the misrepresentationThe other party should have acted upon the misrepresentation
Consequences :Consequences : The aggrieved party may avoid or rescind the contract or accept theThe aggrieved party may avoid or rescind the contract or accept thecontract while insisting that he shall be placed in the position in which hecontract while insisting that he shall be placed in the position in which hewould have been if the representation made had been true.would have been if the representation made had been true.
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Mistake (sec 20 and 21)Mistake (sec 20 and 21)
Mistake may be of two types :Mistake may be of two types :
Mistake of LawMistake of Law Ignorance of law is no excuseIgnorance of law is no excuse (ignorantia juris non-excusat)(ignorantia juris non-excusat)
Mistake of law :Mistake of law :Mistake of the law of the countryMistake of the law of the countryMistake of foreign lawMistake of foreign lawMistake of private rightsMistake of private rights
Mistake of factMistake of fact Mistake of foreign law and mistake of private rightsMistake of foreign law and mistake of private rights
are treated as mistake of facts and may be declaredare treated as mistake of facts and may be declaredas void.as void.
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Bilateral MistakeBilateral Mistake
Bilateral MistakeBilateral MistakeAs per sec 20 where both the parties to an agreementAs per sec 20 where both the parties to an agreement
are under a mistake as to the matter of fact essential toare under a mistake as to the matter of fact essential tothe agreement . Such a contract is declared as void.the agreement . Such a contract is declared as void.
An agreement is void on ground of mistake if :An agreement is void on ground of mistake if : The mistake is mutualThe mistake is mutual
The mistake relates to a matter of fact essential to theThe mistake relates to a matter of fact essential to theagreement.agreement.
Bilateral mistake may be :Bilateral mistake may be :Mistake as to subject matterMistake as to subject matterMistake as to the possibility of performanceMistake as to the possibility of performance
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Mistake of factMistake of fact
Unilateral mistake :Unilateral mistake :Where one of the parties to the contract is under aWhere one of the parties to the contract is under a
mistake it is called Unilateral mistake. The one sidedmistake it is called Unilateral mistake. The one sidedmistake with regard to either the subject matter, termsmistake with regard to either the subject matter, terms
of contract or legal implications of the contractof contract or legal implications of the contract
Effect :Effect : Sec 22 provides that a contract is not voidable merelySec 22 provides that a contract is not voidable merely
because it is caused by one of the parties to it beingbecause it is caused by one of the parties to it beingunder a mistake of fact.under a mistake of fact.
In the following cases unilateral mistake will render aIn the following cases unilateral mistake will render acontract void :contract void : Identity of persons contracted withIdentity of persons contracted with Nature of contract or character of document that is beingNature of contract or character of document that is being
signedsigned
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CLASSIFICATION OFCLASSIFICATION OFCONTRACTSCONTRACTS
Classification according toClassification according to validityvalidity :: Valid Contract -Valid Contract - According to section 2(i), it isan agreement enforceable by
law, an agreement becomes enforceable by law when all the essentialelements of a valid contract
Void contract -Void contract - Section 2(j) defines: A contract which ceases to be enforceable
by law becomes void, when it ceases to be enforceable.
Voidable contract-Voidable contract- According to section 2(i), an agreement which isenforceable by law at the option of one or more of the parties thereto, butnot at the option of the other or others, is a voidable contract.
Unenforceable contract -Unenforceable contract - An unenforceable contract is one which is valid initself, but is not capable of being enforced in a court of law because of sometechnical defect such as absence of writing, registration, requisite stamp,etc., or time barred by the law of limitation.
Classification according toClassification according to formationformation Express contract -Express contract - Where both the offer and acceptance constituting an
agreement enforceable at law are made in words spoken or written, it is anexpress contract.
Im lied contract -Im lied contract - Where both the offer and acce tance constitutin an
A i ddi iA t i dditi
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A note in addition :A note in addition :Illegal Vs VoidIllegal Vs Void
Similarities - These agreements are not enforceable at law.
Differences - Scope
The illegal agreements are narrower in scope. All illegal
agreements are void. The void agreements are wider in scope. An agreement
may be void because of a reason other than illegality.
Effect on collateral transaction Collateral transaction of an illegal contract also becomes
illegal and contract cannot be enforced. Collateral transaction of an agreement which is void for a
reason other than illegality are enforceable at law.
Punishment Parties may be punished for making illegal agreement.
Being void does not make a contract punishable.
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Classification according toClassification according to performanceperformance Executed contract a contract where both the parties have duly fulfilled theirExecuted contract a contract where both the parties have duly fulfilled their
obligations in the contract.obligations in the contract.
Executory contract a contract where the work is not wholly performed or inExecutory contract a contract where the work is not wholly performed or inwhich something still remains to be done.which something still remains to be done.
Unilateral contract Unilateral contract a contract wherein at the conclusion of the contracta contract wherein at the conclusion of the contractthere is an obligation yet to be performed on the part of one party only.there is an obligation yet to be performed on the part of one party only.
Bilateral contract -Bilateral contract - a contract where there is obligation on the part of botha contract where there is obligation on the part of bothto do or to refrain from doing the particular thing. These are similar toto do or to refrain from doing the particular thing. These are similar to
executory contracts.executory contracts.
Classification according toClassification according to English LawEnglish Law Formal contractFormal contract Simple contractSimple contract
CLASSIFICATION OF CONTRACTSCLASSIFICATION OF CONTRACTS
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Void AgreementsVoid Agreements
Agreements by incompetent parties (sec 11)Agreements by incompetent parties (sec 11) Agreements made under a mutual mistake of fact (sec 20)Agreements made under a mutual mistake of fact (sec 20) Agreements the object or consideration of which is unlawfulAgreements the object or consideration of which is unlawful
(sec 23)(sec 23)
Agreements the object or consideration of which is unlawfulAgreements the object or consideration of which is unlawfulin part (sec 24)in part (sec 24) Agreements made without consideration (sec 25)Agreements made without consideration (sec 25) Agreements in restraint of marriage (sec 26)Agreements in restraint of marriage (sec 26) Agreements in restraint of trade (sec 27)Agreements in restraint of trade (sec 27) Agreements in restraint of legal proceedings (sec 28)Agreements in restraint of legal proceedings (sec 28) Agreements the meaning of which is uncertain (sec 29)Agreements the meaning of which is uncertain (sec 29) Agreements by way of wager (sec 30)Agreements by way of wager (sec 30) Agreements to do impossible acts (sec 56)Agreements to do impossible acts (sec 56)
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Exceptions to the Agreements inExceptions to the Agreements inrestraint of traderestraint of trade
Sale of goodwill. The seller of the goodwill of a business can berestrained from carrying on a similar business, within specified locallimits, so long as the buyer, or any person deriving title to the goodwillfrom him, carries on a like business therein, provided the restraint isreasonable in point of time and space (Exception to Sec. 27).
Partners agreements. An agreement in restraint of trade among thepartners or between any partner and the buyer of firms goodwill is validin certain circumstances.
Trade combinations. An agreement, the primary object of which is to
regulate business and not to restrain it, is valid. Thus, an agreement inthe nature of a business combination between traders or manufacturerse.g., not to sell their goods below a certain price, to pool profits or outputand to divide the same in an agreed proportion, does not amount to arestart of trade and is perfectly valid
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Restitution (sec 64 & 65)Restitution (sec 64 & 65)
Restitution implies restoration or return.Restitution implies restoration or return. Sec 65 gives a right of restitution under twoSec 65 gives a right of restitution under two
circumstances :circumstances :When an agreement is discovered to be voidWhen an agreement is discovered to be void
When a contract after its formation becomesWhen a contract after its formation becomes
subsequently voidsubsequently void
Sec 65 does not apply to persons who are whollySec 65 does not apply to persons who are wholly
incompetent to enter into contract.incompetent to enter into contract.
Sec 65 does not apply to agreements which wereSec 65 does not apply to agreements which were
known to be void when they were entered into.known to be void when they were entered into.
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Discharge of ContractDischarge of Contract
Discharge of contract meansDischarge of contract meansterminationtermination ofof rights andrights and
obligationsobligations arising out of aarising out of acontract.contract.
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Modes of discharges ofModes of discharges ofcontractcontract Following are the modes of discharge ofFollowing are the modes of discharge of
contract :contract :
By Act of the partiesBy Act of the parties
By Operation of lawBy Operation of law
Di h f C B A fDi h f C t t B A t f
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Discharge of Contract By Act ofDischarge of Contract By Act ofthe partiesthe parties
By Performance (sec 37)By Performance (sec 37) By tender (sec 38)By tender (sec 38)
By breach of contract (sec 39)By breach of contract (sec 39) By agreement :By agreement :
NovationNovationRescissionRescission
AlterationAlterationRemissionRemissionWaiverWaiverMergerMerger
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Discharge of ContractDischarge of Contract
By Operation of law a contract may beBy Operation of law a contract may be
discharged in any of the following ways :discharged in any of the following ways : By death (sec 37)By death (sec 37)
By impossibility (sec 56)By impossibility (sec 56)
By non existence of a state of thingsBy non existence of a state of things
P f f C
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Performance of ContractPerformance of Contract
Performance may be :Performance may be :Actual PerformanceActual Performance
Attempted performance Attempted performance when one of the parties to the contractwhen one of the parties to the contract
Offers to perform the contract but,Offers to perform the contract but,
The other party does not accept it,The other party does not accept it,
There is an attempted performance.There is an attempted performance.
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Essentials of a valid tender
(an attempted performance)an attempted performance) It must be unconditional It must be made at proper time and place. It must be made by the person who is able and willing. In case of tender of goods it must be for the
quality/quantity of goods agreed upon. In case of tender of goods reasonable opportunity
must be given to the promisee to examine the goods. It must be made to the promisee or his authorized
agent.
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Who must perform theWho must perform thepromise?promise?
By the promisor himself (para 1 of sec 40)By the promisor himself (para 1 of sec 40)
By the agent (para 2 of sec 40)By the agent (para 2 of sec 40)
By the legal representative (sec 37)By the legal representative (sec 37)
By the third parties (sec 41)By the third parties (sec 41)
By Joint promissors (sec 43)By Joint promissors (sec 43)
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Who can demandWho can demandperformance ?performance ? TheThe promiseepromisee can demand performance.can demand performance.
In case of death of promisee theIn case of death of promisee the legallegal
representativerepresentative of that person can demandof that person can demand
performance.performance.
In case of joint promisee then the right toIn case of joint promisee then the right to
demanddemand performance is to be exercisedperformance is to be exercised
jointly.jointly.
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Time and place ofTime and place ofperformanceperformance WhereWhere no timeno time for performance isfor performance is fixedfixed
Performance is to be donePerformance is to be done withoutwithout anyanyrequestrequest of the promisee,of the promisee,
The promise is to be performedThe promise is to be performed within awithin areasonable time.reasonable time.
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Time and place ofTime and place ofperformanceperformance Promise is to be performedPromise is to be performed on a certain dayon a certain day
andand
The promisor has undertaken to perform itThe promisor has undertaken to perform it
without requestwithout request by the promiseeby the promisee
Then the promisor can perform the obligationThen the promisor can perform the obligation
within the official hours of business on suchwithin the official hours of business on such
day and at the place stated.day and at the place stated.
i d l f
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Time and place ofTime and place ofperformanceperformance Promise is to be performed on aPromise is to be performed on a certain daycertain day
At the requestAt the request of the promisee,of the promisee,
The promisee must apply for performance atThe promisee must apply for performance at
a proper place and within usual hours.a proper place and within usual hours.
i d l f
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Time and place ofTime and place ofperformanceperformance When a promise is to be performedWhen a promise is to be performed withoutwithout
requestrequest by the promiseeby the promisee
No place is fixedNo place is fixed for its performancefor its performance
It is the duty of the promiser to apply to theIt is the duty of the promiser to apply to the
promisee to appoint a reasonable place forpromisee to appoint a reasonable place for
the performance of the promise and tothe performance of the promise and to
perform it at such place.perform it at such place.
Ti d l f
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Time and place ofTime and place ofperformanceperformance The performance of the promise may beThe performance of the promise may be
made in any manner or at any time which themade in any manner or at any time which the
promisee prescribes or sanctionspromisee prescribes or sanctions
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Discharge by NovationDischarge by Novation
::
Novation :Novation :A novation takes place whenA novation takes place when
parties to a contract agree to substitute a new contract inparties to a contract agree to substitute a new contract inplace of an old oneplace of an old one
Either between the old parties orEither between the old parties or
The new partiesThe new parties
With the consent of the parties to the contract.With the consent of the parties to the contract.
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Discharge of contract byDischarge of contract byrescissionrescission
Rescission : It means cancellation of all or someRescission : It means cancellation of all or some
of the terms of contract or one party fails toof the terms of contract or one party fails to
perform the contract and other party rescinds theperform the contract and other party rescinds the
contract.contract.
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Discharge by alterationDischarge by alteration
Changing material terms of theChanging material terms of the
contractcontractBilateral alterationBilateral alteration
Unilateral alterationUnilateral alteration
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Discharge by remissionDischarge by remission
Remission Exempting the party to perform theRemission Exempting the party to perform the
contract. It may be full or partial.contract. It may be full or partial.
Di h b W iDi h b W i
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Discharge by WaiverDischarge by Waiverand Mergerand Merger
Waiver Refers to the giving up or foregoingWaiver Refers to the giving up or foregoing
certain rights . Its same as remissioncertain rights . Its same as remission
Merger When inferior rights of a person underMerger When inferior rights of a person under
a contract merge with the superior rights undera contract merge with the superior rights undera new contracta new contract
i h b b hDi h b b h
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Discharge by breachDischarge by breach
Actual Breach when the party refuses toActual Breach when the party refuses to
perform the contract on the date of contract.perform the contract on the date of contract.
The promisee is discharged but not theThe promisee is discharged but not the
promisor.promisor.Anticipated Breach It takes place before theAnticipated Breach It takes place before the
date of actual performance.date of actual performance.
ExpressExpress ImpliedImplied
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Discharge by deathDischarge by death
Contracts of personal nature comes to anContracts of personal nature comes to an
end by the death of promisor.end by the death of promisor.
sc arge y mposs tysc arge y mposs y
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sc arge y mposs tysc arge y mposs y
(Doctrine of Frustration)(Doctrine of Frustration)
Impossibility arising subsequent to theImpossibility arising subsequent to the
formation of the contractformation of the contractBy death of partyBy death of party
By destruction of subject matterBy destruction of subject matterObject becoming illegal or unlawfulObject becoming illegal or unlawful
Out-break of warOut-break of war
By non-existence of a state of things theBy non-existence of a state of things thecontinued existence of a state formed thecontinued existence of a state formed the
basis of contract.basis of contract.
Remedies for breach ofRemedies for breach of
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Remedies for breach ofRemedies for breach ofcontractcontract Right of rescissionRight of rescission Right to claim compensation or damagesRight to claim compensation or damages
Ordinary damagesOrdinary damages
Special damagesSpecial damages Vindictive or exemplary damagesVindictive or exemplary damagesNominal damagesNominal damagesDamages for personal inconvenience and discomfortDamages for personal inconvenience and discomfort
Specific performanceSpecific performance Injunction orderInjunction order