Indian Contract Act

Writing Assignment 10

Topic

When does a contract reaches its conclusion?

Submitted by – Bhuvana V

Course – DEABL

Batch – May 2017

What is a contract?

Generally, a contract is an agreement entered between two or more parties to do or abstain from doing certain acts for some consideration.

According to Anson , ‘A contract consists in an actionable promise or promises. Every such promise involves two parties, a promisor and promise, and an express of a common intention and of expectation as to the act or forbearance promised.”

In India, contracts are governed by Indian Contract Act, 1872. When the contract is silent on certain aspects, the law of contracts comes in rescue to sort out the discrepancy.

According to the Indian Contract Act, 1872, “An agreement enforceable by law is a contract.”

As per S10 of the Indian Contract Act, “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.

Nothing herein contained shall affect any law in force in India and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witness, or any law relating to the registration of documents.”

Objective of the Law of Contract

The underlying principle of the law of contract is parties are at their liberty to enter into agreements to fulfill the promises made thereunder subject to certain statutory stipulations and essentials that are required to be followed.

Conclusion of a contract

A valid contract once entered into, is enforceable by law. Once a contract is entered into, then the next course of action will be its performance. A contract is either performed or discharged to conclude. The conclusion of a contract can be understood in two stages, -

a. Preliminary stage –

I. Where the offer is duly accepted.

II. wherein a contract either oral or reduced to writing, duly signed, witnessed and executed,

III. entered into between the competent parties as prescribed under section 11 of the Act,

IV. with free consent ,

V. for lawful consideration, and

VI. object which is not expressly declared as void under the Act or any other law to which the parties are subject,

This is the preliminary stage where the contract can be said to be partially conclusive with respect of the agreement entered into either orally in the presence of witnesses or reduced to writing that is duly registered wherever essentially required. This is the negotiation phase of the contract.

b. Finality or conclusiveness of the contract

I. A contract is said to conclude when it is performed by the parties or

II. Discharged otherwise in any other modes for certain reasons.

A contract comes to an end when the essence of it is performed; in the situation where it cannot be performed the alternatives are prescribed either in the said contract itself in the form of stipulations or otherwise as prescribed under the Act. This is the execution phase of the contract.

Performance of contract

The general rule of performance is, “that the parties to a contract must 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.”

The general principle of contract is the parties promised to perform certain acts through a contract are under the obligation to fulfill the same and cannot absolve their duties from the same. When the terms agreed in a contract is performed by the parties, the contract completes and reach the conclusion.

The promises bind not only the promisors but also their representatives if they die before performing their promises. But the representatives of the promisors shall not be bound by the promises if a contract intention appears from the contract.

For example, if A promises B to deliver some goods for a consideration and subsequently died, the representative of A shall perform the delivery of said goods.But when A has promised to provide a personal service which has to be performed only by him, the same, upon his death, it cannot be enforced upon his representative for performance.For example, if A had promised some special design or a painting of a picture for B, upon his death it cannot be enforced on his representative for performance as agreed in the contract.

Discharge of Contracts

A contract is said to be discharged by

i. Performance of the parties as negotiated and stipulated;

ii. Impossibility of performance due to certain reasons;

iii. Agreement;

iv. Breach; and

v. Operation of Law

When a contract cannot be performed it is discharged on certain grounds as stated above.In these forms as well the contract can be said to get completed.

Impossibility of performance

When the parties are willing to perform the contract, however, cannot do so due to the subsequent impossibility, the contract is said to be frustrated and both the parties are absolved from their obligations and liabilities.

Under the English Law the doctrine of frustration was recognized on the following grounds –

i. Destruction of the subject-matter of the contract:

This was envisaged in the leading case, Taylor v Caldwell , where the performance of the contract became impossible by the destruction of the music hall which was the essential thing to the performance of that contract.

ii. Non-occurrence of a particular state of things:

In Krell v Henry(Coronation case), the postponement of the coronation of prince owing to his sudden illness was not in the control of the parties to a contract, hence stands frustrated thereby.

iii. Death or incapacity of the party:

In the cases of personal services, death or incapacity of a party can be treated as valid ground to frustrate the contract. In Robinson v Davison , the piano player couldn’t perform due to her severe illness at the promised date of performance and the Court held that her continued health was a condition stipulated in the agreement thereby her illness shall be a valid ground to frustrate the contract.

iv. Change of circumstances:

When the changes in circumstances are beyond the control of the parties, the same shall be a valid ground to absolve the parties from contractual obligations.

v. Change in law / Legislative or Government Intervention:

When there is an intervention due to any new law coming into force, any legislative action or government exercising statutory powers for certain reasons, due to which when the performance of the contract is impossible, the same validates the frustration and absolve the parties from their obligations. In Metropolitan Water Board v Dick, Kerr and Co. Ltd.the contract to construct a reservoir within a period of six years had to be stopped due to the statutory instructions of the Ministry and the plant had to be removed. It was held that the parties are discharged from their obligations due to the said statutory order.

Under the Indian Law, as per S 56, “an agreement to do an act impossible in itself void and 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, unlawful, becomes void when the act becomes impossible or unlawful.”

However, S 56 also states an exception that, “where one person has promised to do something, which he knew, or with reasonable diligence, might have known, and which the promisee did not know to be impossible or unlawful, such promisor must make compensation to such promise for any loss which such promisee sustains through the non-performance of the promise.”

In Satyabrata v Mugneeram , the Supreme Court observed that para 3 of section 56 should be deemed to be an exception to the doctrine of frustration for it, instead of discharging the contract, makes the promisor liable to pay compensation to the promises for non-performance of the promise.

By Agreement

Sections 62 to 67 of the Indian Contract Act, 1972 deals with contracts which need not be performed. When a contract is substituted by another contract or agreement by the parties the earlier contract stands discharged.

This substitution is called Novation which is of two types –

i. Which involves change of parties to the contract; and

ii. Substitute the old contract with a new contract.

Another way to discharge the contract is to alter or rescind the contract by an agreement between the parties.

By Breach of Contract

A contract is said to be breached either by one of the parties repudiating the contract before the time of performance or by refusing to perform his part of performance. This is generally called as anticipatory breach and breach during performance respectively.

By Operation of Law

A contract stands discharged under the following circumstances –

i. Merger – in cases where a higher security replaces a lower security, the latter is said to be merged with the former and the corresponding party is discharged from the obligations to the extent of such lower security.

ii. Alteration or cancellation of a written instrumentwith the free consent of the parties

iii. Bankruptcy – when a party is adjudged as insolvent by the court, he is thereby discharged from his obligations to that extent and effect.

iv. By judgment of court – when a judgment is pronounced by a competent court in favor of a party, the corresponding contractual obligation to the extent of such judgment’s effect stands discharged.

Conclusion

Therefore, it can be understood that when the parties to an agreement enters into a lawful contract as prescribed under the Act, after the negotiations and technical completion of the same, it can be recognized as preliminary conclusiveness of a contract, and when such contract is duly performed or discharged otherwise on any of the aforesaid grounds and reasons, the contract is said to reach the final conclusion.

BIBLIOGRAPHY

Contract- I and Specific Relief Act, 13th Edition by Dr. S.K. Kapoor

Law of Contrats I & II, 11th Edition, by Prof. G.C.V. Subba Rao

Contract and Specific Relief Act, 1th Edition, Avtar Singh

The Indian Contract Act, 1872, 2015 Edition, Bare Act

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