Contract & Contractual Obligations
An agreement enforceable by law is a contract;
What agreements are contracts—
All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.
An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract;
“Contingent contract” defined.—
A “contingent contract” is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.
37. Obligation of parties to contract.—
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 of any other law.
Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract.
64. Consequences of rescission of a voidable contract.—
When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is the promisor. The party rescinding a voidable contract shall, if he had received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received.
73. Compensation for loss or damage caused by breach of contract—
When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by contract.—
When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
Explanation.—In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.
74. Compensation for breach of contract where penalty stipulated for.-
When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
Explanation.—A stipulation for increased interest from the date of default may be a stipulation by way of penalty.
Exception.—When any person enters into any bail-bond, recognizance or other instrument of the same nature or, under the provisions of any law, or under the orders of the Central Government or of any State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.
Explanation.—A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested.
75. Party rightfully rescinding contract, entitled to compensation—
A person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfilment of the contract.
10. Specific performance in respect of contracts.
The specific performance of a contract shall be enforced by the court subject to the provisions contained in sub-section (2) of section 11, section 14 and section 16.
11. Cases in which specific performance of contracts connected with trusts enforceable –
(1) Except as otherwise provided in this Act, specific performance of a contract shall, be enforced when the act agreed to be done is in the performance wholly or partly of a trust.
(2) A contract made by a trustee in excess of his powers or in breach of trust cannot be specifically enforced.
14. Contracts not specifically enforceable. – The following contracts cannot be specifically enforced, namely:—
(a) where a party to the contract has obtained substituted performance of contract in accordance with the provisions of section 20;
(b) a contract, the performance of which involves the performance of a continuous duty which the court cannot supervise;
(c) a contract which is so dependent on the personal qualifications of the parties that the court cannot enforce specific performance of its material terms; and
(d) a contract which is in its nature determinable.
16. Personal bars to relief.
– Specific performance of a contract cannot be enforced in favour of a person
(a) who has obtained substituted performance of contract under section 20; or
(b) who has become incapable of performing, or violates any essential term of, the contract that on his part remains to be performed, or acts in fraud of the contract, or wilfully acts at variance with, or in subversion of, the relation intended to be established by the contract; or
(c) who fails to prove that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him, other than terms the performance of which has been prevented or waived by the defendant.
Explanation. For the purposes of clause (c),
(i) where a contract involves the payment of money, it is not essential for the plaintiff to actually tender to the defendant or to deposit in Court any money except when so directed by the Court;
(ii) the plaintiff must prove performance of, or readiness and willingness to perform, the contract according to its true construction.
20. Substituted performance of contract.
(1) Without prejudice to the generality of the provisions contained in the Indian Contract Act, 1872, and, except as otherwise agreed upon by the parties, where the contract is broken due to non-performance of promise by any party, the party who suffers by such breach shall have the option of substituted performance through a third party or by his own agency, and, recover the expenses and other costs actually incurred, spent or suffered by him, from the party committing such breach.
(2) No substituted performance of contract under sub-section (1) shall be undertaken unless the party who suffers such breach has given a notice in writing, of not less than thirty days, to the party in breach calling upon him to perform the contract within such time as specified in the notice, and on his refusal or failure to do so, he may get the same performed by a third party or by his own agency:
Provided that the party who suffers such breach shall not be entitled to recover the expenses and costs under sub-section (1) unless he has got the contract performed through a third party or by his own agency.
(3) Where the party suffering breach of contract has got the contract performed through a third party or by his own agency after giving notice under sub-section (1), he shall not be entitled to claim relief of specific performance against the party in breach.
(4) Nothing in this section shall prevent the party who has suffered breach of contract from claiming compensation from the party in breach.
The principle under which damages will be awarded u/s 73 of the Indian Contract Act will be different from the principle involved in damages which will be awarded in lieu of specific performance. In the case of damages in lieu of specific performance the same does not result directly or consequentially from out of a breach of a contract as is the cask u/s 73 of the Indian Contract Act. There might be circumstances when the plaintiff might be entitled to specific formic but the Court in its discretion might find that in the special facts of the case the plaintiff should not be awarded specific performance of the contract; but if damages would be awarded in lieu or in substitution thereof then that would amount to granting of a suitable relief. In other words the Court must be in a position to consider that the plaintiff was otherwise entitled to claim specific performance. If that condition would not be fulfilled then there could be no question of the court’s exercising that power of granting relief by way of damages in lieu thereof. The expression “in lieu of specific performance” means and signifies that the relief by way of damages is granted in place of specific performance or in substitution thereof so that adequate relief might be awarded to the plaintiff who was otherwise entitled to such specific performance. Once the plaintiff would abandon his case of specific performance then that would be an end of the matter so far as the relief by way of damages in lieu of specific performance was concerned. As observed herein above, he must not only be ready and willing to perform his part of the contract up to the date of the filing of the suit but also during the continuance thereof so that the Court would be in a position to consider the case of granting relief by way of damages in lieu of specific performance even at the time of the passing of the decree. [GOPI NATH SEN AND OTHERS Vs. BAHADURMUL DULICHAND AND OTHERS ][CHC]