Tag: Compliance

Contractual capacity

Contractual capacity refers to the legal ability of a person or entity to enter into a valid, binding contract. It means that the person must have the mental and legal competence to understand the terms, obligations, and consequences of the agreement they are making. Not everyone has the capacity to contract — for example, minors, people of unsound mind, or persons disqualified by law generally lack full contractual capacity.

In most legal systems, including under the Indian Contract Act, 1872, a contract made by someone without contractual capacity is void or voidable. This rule exists to protect individuals who may not fully understand what they are agreeing to or who are at risk of being taken advantage of. For a contract to be enforceable, all parties involved must meet the minimum requirements of age (usually 18 or above), mental competence, and legal eligibility.

Mental competence means the person should be of sound mind, capable of understanding the nature and effect of the contract at the time it is made. A person temporarily mentally impaired — due to intoxication, illness, or distress — may also lack capacity during that period. Similarly, minors are generally deemed incapable of entering into enforceable contracts, except for certain necessities.

Contractual capacity ensures fairness and justice in contractual relationships. If someone lacks capacity, the contract can usually be canceled or voided by the party lacking capacity or their guardian. This rule prevents exploitation and protects vulnerable groups. However, it also means the other party should exercise due care before contracting with someone whose capacity might be in question.

Capacity to Contract:

Capacity to contract means a party has the legal ability to enter into a contract.

Capacity to contract refers to the legal competence of a person or entity to enter into a valid and enforceable agreement. Under the Indian Contract Act, 1872, Section 11 specifically states that a person is competent to contract if they (1) have attained the age of majority, (2) are of sound mind, and (3) are not disqualified from contracting by any law they are subject to. This means only individuals who meet these conditions can create binding legal obligations through a contract.

The age of majority is generally 18 years. Anyone below this age is considered a minor and, under law, lacks capacity to contract. Contracts entered into by minors are generally void or voidable to protect them from exploitation. However, contracts for necessities (such as food, clothing, or shelter) supplied to a minor may be enforceable to ensure fairness.

Being of sound mind means the individual must be mentally capable of understanding the nature of the contract and making rational decisions about their obligations. Persons who are mentally ill, intoxicated, or otherwise incapable of understanding the consequences of their actions at the time of contracting may not have the capacity to contract.

There are also legal disqualifications that apply to certain individuals or groups, such as bankrupt persons, convicts, foreign sovereigns, or companies, depending on the jurisdiction. These disqualifications prevent certain people or entities from entering into specific types of contracts.

Capacity to contract is essential because it ensures that all parties entering into agreements understand what they are doing and can be held accountable for their promises. If a person lacks capacity, the contract may be deemed void or voidable, protecting vulnerable individuals and ensuring fairness in contractual dealings.

A contract must contain these six elements:

• Offer
• Acceptance
• Consideration
• Capacity
• Intent
• Legality

Incapacity to Contract – Minors:

Under the Indian Contract Act, 1872, one of the key elements of a valid contract is that the parties involved must be competent to contract. Section 11 of the Act clearly states that a person is competent if they have attained the age of majority, are of sound mind, and are not disqualified by any law. A minor — that is, a person below 18 years of age — lacks the legal capacity to enter into a valid contract.

Contracts entered into by minors are generally considered void ab initio, meaning they are void from the very beginning. This is done to protect minors from exploitation, as they are assumed to lack the maturity and judgment to understand the legal consequences of contractual obligations. For example, if a minor signs an agreement to buy a car, that agreement is not enforceable against the minor.

However, the law provides certain exceptions to this rule. A minor’s contract for necessaries — such as food, clothing, education, or medical care — is enforceable, but only against the minor’s property, not personally against the minor. This ensures that suppliers providing essential goods and services to minors are protected.

Another key principle is that a minor cannot ratify an agreement upon attaining majority. If a minor enters into an agreement, turning 18 does not make the past contract valid unless a new agreement is drawn and consented to afresh.

Minors can, however, be beneficiaries under a contract. This means they can receive benefits, gifts, or payments under agreements without being bound by obligations. For example, if an adult promises to pay a minor a scholarship or gift, the minor can accept the benefit.

In essence, the incapacity of minors to contract is a protective legal measure. It shields them from the consequences of immature decision-making, while also ensuring that essential needs are met fairly. It strikes a balance between protecting young individuals and maintaining fairness in commercial and social interactions.

Who Doesn’t Meet Criteria for Capacity

Some people lack the capacity to enter into a legally binding contract:

• 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.

Contracts made with people who don’t have legal capacity are voidable. The other person has the right of rescission, the option to void the contract and all related terms and conditions. Courts may opt to void or rescind a contract if one of the parties lacked legal capacity. If the court voids the contract, it will attempt to put all parties back in the position they were in before the agreement, which may involve returning property or money when feasible.

Capacity of Companies

Companies also have to have capacity when entering into an agreement. If they don’t, there can be serious consequences, particularly regarding guarantees. There are similarities across legal systems and jurisdictions when it comes to the general rules that govern the legal capacity of companies. For example, the legal theory that a business has a separate legal personality is recognized in both civil and common law jurisdictions. This means that as a defined legal person, a company has the capacity to enter into a contract with other parties and can be held liable for its actions.

Civil Law Countries

The United States isn’t the only country that recognizes this legal concept. For example, France, a civil law country, has also adopted this idea. Legal capacity regarding entities was recently reformed by Ordinance n°2016-131, which went into effect in 2016. Under French Civil Code Article 1147, a company’s lack of capacity is a grounds for relative nullity, a defense that can be invoked by the aggrieved party to void the contract. In this case, the aggrieved party would be the company. Furthermore, Article 1148 allows French companies who lack capacity to contract to legally enter into contracts that are day-to-day acts which are authorized by usage or legislation.

In Spain, there is a special relationship with church and state. As a result, the church is governed by elements of a specific concordat: Spanish Civil Code Article 37, which says that companies enjoy “civil capacity.”

Common Law Countries

In common law countries, a company’s capacity is limited by the company’s memorandum of association. This document contains the clause that describes the commercial activities the business is involved in, thereby delineating the company’s capacity.

Under the ultra vires doctrine, a business cannot do anything beyond what is allowed by its statement of objects. The ultra vires doctrine was initially seen as a necessary measure to protect a company’s shareholders and creditors. This doctrine gave rise to what’s known as the constructive notice rule, which states that any third party that entered into a contract with another company must have been knowledgeable of that business’s objects clause.

Consent and free consent

Free Consent is an essential element for formation of a contract . According to Section 10 of the Indian Contract Act, 1872, All agreements are contracts, if they are made by the free consent. Section 13 and Section 14 of the Indian Contract Act, 1872 defines ‘Consent’ and ‘Free Consent’ respectively.

Meaning of Consent

The term Consent means “agreed to “or giving acceptance. The parties to the Contract must freely and mutually agree upon the terms of the contract in the same sense and at the same time.  There cannot be any agreement unless both the parties it to agree to it. If there is no Consent, Agreement will be void ab initio for want of consent       

Consent

Section 13 of the Indian Contract Act 1872 defines Consent as “Two or more person are said to consent when they agree upon the same thing in the same sense.”

Free Consent

According to Section 10 of the Indian Contract Act, 1872, to constitute a valid contract, parties should enter into the contract with their free Consent. Consent is said to be free when it is not obtained by coercion, or undue influence or fraud or misrepresentation or mistake.

Section 14 of the said act defines ‘Free Consent’ as Consent is said to be free, when it is not caused by:

(1) Coercion (as defined in section 15 of the Indian Contact Act 1872) or

(2) Undue Influence as defined in section 16 of the Indian Contact Act 1872) or

(3) Fraud (as defined in section 17 of the Indian Contact Act 1872), or

(4) Misrepresentation as defined in section 18 of the Indian Contact Act 1872) or

(5) Mistake, subject to the provisions of section 20, 21, and 22.

Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation, or mistake

Section 2(i): 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;

Section 2(g): when a consent is caused by mistake, the agreement is void. A void agreement is not enforceable at the option of either party.

Consideration

Consideration: “Something which is given and taken.”Section 2 (d) of the Contact Act 1872 defines contract as “When at the desire of the promissory, the promise or any other person has done or abstained from doing or does or abstains from doing or promise to do or abstain from doing. Something such act or abstinence or promise is called a consideration for the promise.”

“When at the desire of the promissory, the promise or any other person has done or abstained from doing or does or abstains from doing or promise to do or abstain from doing. Something such act or abstinence or promise is called a consideration for the Promise.”

Importance of consideration

Consideration is the foundation of ever contract. The law insists on the existence of consideration if a promise is to be enforced as creating legal obligations. A promise without consideration is null and void.

Types of Consideration

1. Executory,
2. Executed
3. Past consideration

Executed consideration is an act in return for a promise. If ,for example, A offers a reward for the return of lost property, his promise becomes binding when B performs the act of returning A’s property to him. A is not bound to pay anything to anyone until the prescribed act is done.

Executory consideration is a promise given for a promise. If, for example, customer orders goods which shopkeeper undertakes to obtain from the manufacturer, the shopkeeper promises to supply the goods and the customer promises to accept and pay for them. Neither has yet done anything but each has given a promise to obtain the promise of the other. It would be breach of contract if either withdrew without the consent of the other.

Past consideration which as general rule is not sufficient to make the promise binding. In such a case the promisor may by his promise recognize a moral obligation (which is not consideration), but he is not obtaining anything in exchange for his promise (as he already has it before the promise is made).

Essentials of a valid consideration:

• At the desire of the promisor
• Promisee or any other person
• Consideration may be past, present or future
• Consideration must be real

Consideration 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. Thus acts done or services rendered voluntarily, or at the desire of third party, will not amount to valid consideration so as to support a contract.

Consideration may move from the promisee or any other person:

The second essential of valid consideration, as contained in the definition of consideration in Section 2(d), is that consideration need not move from the promisee alone but may proceed from a third person.

Thus, as long as there is a consideration for a promise, it is immaterial who has furnished it. It may move from the promisee or from any other person. This means that even a stranger to the consideration can sue on a contract, provided he is a party to the contract. This is sometimes called as ‘Doctrine of Constructive Consideration’.

Consideration may be past, present or future:

The words, “has done or abstained from doing; or does or abstains from doing; or promises to do or to abstain from doing,” used in the definition of consideration clearly indicate that the consideration may consist of either something done or not done in the past, or done or not done in the present or promised to be done or not done in the future. To put it briefly, consideration may consist of a past, present or a future act or abstinence. Consideration may consist of an act or abstinence:

Past consideration: When something is done or suffered before the date of the agreement, at the desire of the promisor, it is called ‘past consideration.’ It must be noted that past consideration is good consideration only if it is given by the promisee, ‘at the desire of the promisor Present consideration: Consideration which moves simultaneously with the promise is called ‘present consideration’ or ‘executed consideration’

Future consideration: When the consideration on both sides is to move at a future date, it is called ‘future consideration’ or ‘executory consideration’. It consists of an exchange of promises and each promise is a consideration for the other.

Consideration must be ‘something of value’: The fourth and last essential of valid consideration is that it must be ‘something’ to which the law attaches a value. The consideration need not be adequate to the promise for the validity of an agreement.

A contract is an agreement enforceable by law, creating rights and obligations between two or more parties. However, these rights and duties do not continue indefinitely. When the contractual obligations come to an end, it is called the discharge of a contract. In simple terms, discharge of a contract means the termination of the contractual relationship, where no party remains bound to perform any further obligations under the contract.

According to the Indian Contract Act, 1872, a contract is said to be discharged when the parties are no longer liable to fulfill the promises they made. This can happen in several ways, and understanding these modes is essential for businesses, individuals, and legal professionals to ensure contracts are properly closed.

Discharge of contract can be defined as the cancellation or termination of the contractual relationship between the parties under the contract, releasing them from further obligations. It marks the point where the contract ceases to have any legal effect, and both parties are free from performance or liability.

Modes of Discharge of Contract:

• Discharge by Performance

The most common and straightforward mode of discharging a contract is through performance. When both parties fulfill their obligations as per the contract terms, the contract comes to an end. Performance can be actual (where obligations are fulfilled) or attempted (where one party tries to perform but the other refuses to accept). For example, if A contracts to deliver goods to B on a certain date and B agrees to pay upon delivery, once these actions are completed, the contract is discharged. Sometimes, performance can be joint, where multiple parties perform together. It is essential that the performance matches the contract terms exactly; otherwise, it may not qualify as valid discharge. Courts recognize completed performance as the cleanest form of contract closure.

• Discharge by Mutual Agreement

Parties may mutually decide to end or change their contractual relationship, resulting in discharge. This can occur through novation (substitution of a new contract), rescission (mutual cancellation), alteration (changing terms), or remission (accepting less performance or no performance). For example, if A and B agree to substitute a new agreement for the old one, the original contract is discharged by novation. Similarly, if the parties mutually agree to cancel the contract altogether (rescission), they are released from their obligations. This discharge mode is particularly important in commercial contracts where circumstances change, and flexibility is required. The key factor here is mutual consent — both parties must agree to the change or cancellation; unilateral decisions do not qualify as mutual discharge.

• Discharge by Impossibility or Frustration

A contract may be discharged if it becomes impossible to perform due to unforeseen events, called the doctrine of frustration. For example, if a natural disaster, war, legal change, or death makes performance impossible, the contract is automatically discharged. Section 56 of the Indian Contract Act, 1872, covers such situations, where performance becomes impossible through no fault of either party. The idea is that the law does not compel the impossible. It’s important to note that mere difficulty or inconvenience does not amount to frustration — the impossibility must be fundamental. For instance, if A contracts to perform at B’s event, but the venue burns down, the contract is frustrated and thus discharged. Frustration protects parties from unfair obligations beyond their control.

• Discharge by Lapse of Time

Contracts must be performed within the time limits set by the Limitation Act, 1963. If a party fails to perform their obligations within this period, the contract becomes unenforceable, effectively discharging it by lapse of time. For example, if a creditor does not recover a debt within three years, the debt becomes time-barred, and the debtor is no longer legally bound to pay. This rule ensures that claims are made promptly and disputes are not dragged on indefinitely. However, if the party acknowledges the debt or promises to pay before the period ends, the limitation period may reset. It’s important to note that lapse of time discharges the legal remedy, not the moral obligation — the right to sue is lost, but the duty may remain.

• Discharge by Operation of Law

Certain legal situations can automatically discharge a contract, even if the parties do not act. This is called discharge by operation of law. Common examples include insolvency or bankruptcy, where a party’s inability to pay debts leads to the discharge of obligations. Similarly, unauthorized alteration of contract terms by one party without the other’s consent can discharge the contract. Merger of rights (when a lesser right merges into a higher right, such as when a tenant becomes the landlord) is another example. Also, in cases of death or dissolution of a firm where personal skills are involved, the contract may end by law. The law recognizes that certain events fundamentally change the nature or enforceability of agreements, thus releasing parties automatically from obligations.

• Discharge by Breach of Contract

A contract can be discharged if one party deliberately refuses to perform their obligations, known as breach of contract. This may be an actual breach (when performance is due) or anticipatory breach (before performance is due). For example, if A agrees to deliver goods to B on a certain date but refuses before that date arrives, B can treat the contract as discharged and claim damages. Breach gives the non-defaulting party the right to terminate the contract and seek remedies, but they may also choose to continue with the contract if they prefer. Not all breaches lead to discharge — only material breaches that go to the root of the contract qualify. Minor or partial breaches may result in compensation but not complete discharge.

A contract places a legal obligation upon the contracting parties to perform their mutual promises, and it carries on until the discharge or termination of the contract. The most natural and usual mode of discharging a contract is to perform it. A person who performs a contract in accordance with its terms is discharged from any further obligations. As a rule, such performance entitles him to receive the other party’s performance.

Exact and complete performance by both the parties puts an end to the contract. In expecting exact performance, the courts mean that, performance must match contractual obligations. In requiring a contract to be complete, the law is merely saying that any work undertaken must be carried out to the end of the obligations.

A contract should be performed at the time specified and at the place agreed upon. When this has been accomplished, the parties are discharged automatically and the contract is discharged eventually. There are, however, many other ways in which a discharge may be brought about. For example, it may result from an excuse for non-performance. In certain cases attempted performance may also operate as a substitute for actual performance, and can result in complete discharge of the 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.

Promises bind the representatives of the promisor in case of the death of the latter before performance, unless a contrary intention appears in the contract.

Thus, it is the primary duty of each contracting party to either perform or offer to perform its promise. For performance to be effective, the courts expect it to be exact and complete, i.e., the same must match the contractual obligations. However, where under the provisions of the Contract Act or any other law, the performance can be dispensed with or excused, a party is absolved from such a responsibility.

Example:

A promises to deliver goods to B on a certain day on payment of Rs 1,000. Aexpires before the contracted date. A‘s representatives are bound to deliver the goods to B, and B is bound to pay Rs 1,000 to A‘s representatives.

Types of Performance:

Performance, as an action of the performing may be actual or attempted.

1. 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.

Partial performance must be accepted by the other party. In other words, the party who is at the receiving end of the partial performance has a genuine choice whether to accept or reject. Substantial performance, on the other hand, is legally enforceable against the other party.

Payment is made on a different basis from that for substantial performance. It is made on quantum meruit, which literally means as much as is deserved. So, for example, if half of the work has been completed, half of the negotiated money would be payable. In case of substantial performance, the party that has performed can recover the amount appropriate to what has been done under the contract, provided that the contract is not an entire contract. The price is thus, often payable in such circumstances, and the sum deducted represents the cost of repairing defective workmanship.

2. 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.

Rules regarding Performance of Contracts:

In this regard, Section 38 of Indian Contract Act says:

‘Where a promisor has made an offer of performance to the promisee, and the offer has not been accepted, the promisor is not responsible for non-performance, nor does he thereby lose his rights under the contract. For example, A contracts to deliver to B, 100 tons of basmati rice at his warehouse, on 6 December 2015. Atakes the goods to B‘s place on the due date during business hours, but B, without assigning any good reason, refuses to take the delivery. Here, A has performed what he was required to perform under the contract. It is a case of attempted performance and A is not responsible for non-performance of B, nor does he thereby lose his rights under the contract.’

Definition of Delivery

According to Section 2 (2) of the Sale of Goods Act, 1930, delivery means voluntary transfer of possession of goods from one person to another. Hence, if a person takes possession of goods by unfair means, then there is no delivery of goods. Having understood delivery, let’s look at the law on sales

Law on Sales

• The Duty of the Buyer and Seller (Section 31)

It is the duty of the seller to deliver the goods and the buyer to pay for them and accept them, as per the terms of the contract and the law on sales.

• Concurrency of Payment and Delivery (Section 32)

The delivery of goods and payment of the price are concurrent conditions as per the law on sales unless the parties agree otherwise. So, the seller has to be willing to give possession of the goods to the buyer in exchange for the price. On the other hand, the buyer has to be ready to pay the price in exchange for possession of the goods.

Rules Pertaining to the Delivery of Goods

The Sale of Goods Act, 1930 prescribes the following rules regarding delivery of goods:

1. Delivery (Section 33)

The delivery of goods can be made either by putting the goods in the possession of the buyer or any person authorized by him to hold them on his behalf or by doing anything else that the parties agree to.

2. Effect of part-delivery (Section 34)

If a part-delivery of the goods is made in progress of the delivery of the whole, then it has the same effect for the purpose of passing the property in such goods as the delivery of the whole. However, a part-delivery with an intention of severing it from the whole does not operate as a delivery of the remainder.

3. Buyer to apply for delivery (Section 35)

A seller is not bound to deliver the goods until the buyer applies for delivery unless the parties have agreed to other terms in the contract.

4. Place of delivery [Section 36 (1)]

When a sale contract is made, the parties might agree to certain terms for delivery, express or implied. Depending on the agreement, the buyer might take possession of the goods from the seller or the seller might send them to the buyer.

If no such terms are specified in the contract, then as per law on sales

• The goods sold are delivered at the place at which they are at the time of the sale
• The goods to be sold are delivered at the place at which they are at the time of the agreement to sell. However, if the goods are not in existence at such time, then they are delivered to the place where they are manufactured or produced.

5. Time of Delivery [Section 36 (2)]

Consider a contract of sale where the seller agrees to send the goods to the buyer, but not time of delivery is specified. In such cases, the seller is expected to deliver the goods within a reasonable time.

6. Goods in possession of a third party [Section 36 (3)]

If at the time of sale, the goods are in possession of a third party. Then there is no delivery unless the third party acknowledges to the buyer that the goods are being held on his behalf. It is important to note that nothing in this section shall affect the operation of the issue or transfer of any document of title to the goods.

7. Time for tender of delivery [Section 36 (4)]

It is important that the demand or tender of delivery is made at a reasonable hour. If not, then it is rendered ineffectual. The reasonable hour will depend on the case.

8. Expenses for delivery [Section 36 (5)]

The seller will bear all expenses pertaining to putting the goods in a deliverable state unless the parties agree to some other terms in the contract.

9. Delivery of wrong quantity (Section 37)

• Sub-section 1 – If the seller delivers a lesser quantity of goods as compared to the contracted quantity, then the buyer may reject the delivery. If he accepts it, then he shall pay for them at the contracted rate.
• Sub-section 2 – If the seller delivers a larger quantity of goods as compared to the contracted quantity, then the buyer may accept the quantity included in the contract and reject the rest. The buyer can also reject the entire delivery. If he wants to accept the increased quantity, then he needs to pay at the contract rate.
• Sub-section 3 – If the seller delivers a mix of goods where some part of the goods are mentioned in the contract and some are not, then the buyer may accept the goods which are in accordance with the contract and reject the rest. He may also reject the entire delivery.
• Sub-section 4 – The provisions of this section are subject to any usage of trade, special agreement or course of dealing between the parties.

10. Installment deliveries (Section 38)

The buyer does not have to accept delivery in installments unless he has agreed to do so in the contract. If such an agreement exists, then the parties are required to determine the rights and liabilities and payments themselves.

11. Delivery to carrier [Section 36 (1)]

The delivery of goods to the carrier for transmission to the buyer is prima facie deemed to be ‘delivery to the buyer’ unless contrary terms exist in the contract.

12. Deterioration during transit (Section 40)

If the goods are to be delivered at a distant place, then the liability of deterioration incidental to the course of the transit lies with the buyer even though the seller agrees to deliver at his own risk.

13. Buyers right to examine the goods (Section 41)

If the buyer did not get a chance to examine the goods, then he is entitled to a reasonable opportunity of examining them. The buyer has the right to ascertain that the goods delivered to him are in conformity with the contract. The seller is bound to honor the buyer’s request for a reasonable opportunity of examining the goods unless the contrary is specified in the contract.

14. Acceptance of Delivery of Goods (Section 42)

A buyer is deemed to have accepted the delivery of goods when:

• He informs the seller that he has accepted the goods; or
• Does something to the goods which is inconsistent with the ownership of the seller; or
• Retains the goods beyond a reasonable time, without informing the seller that he has rejected them.

15. Return of Rejected Goods (Section 43)

If a buyer, within his right, refuses to accept the delivery of goods, then he is not bound to return the rejected goods to the seller. He needs to inform the seller of his refusal though. This is true unless the parties agree to other terms in the contract.

16. Refusing Delivery of Goods (Section 44)

If the seller is willing to deliver the goods and requests the buyer to take delivery, but the buyer fails to do so within a reasonable time after receiving the request, then he is liable to the seller for any loss occasioned by his refusal to take delivery. He is also liable to pay a reasonable charge for the care and custody of goods.

When a contract is legally formed, it binds both parties to fulfill their respective obligations. However, if one party fails to perform their duties as agreed, it results in a breach of contract. A breach can be either total or partial and may arise from refusal to perform, late performance, or defective performance. In such cases, the law provides remedies to the aggrieved party to ensure justice and restore their rights. These are known as remedies for breach of contract.

The term “remedies for breach of contract” refers to the legal solutions available to a party who suffers due to another’s failure to uphold contractual obligations. These remedies are intended to place the injured party in the position they would have been in had the contract been properly performed.

Remedies may include monetary compensation (damages), specific performance (compelling the defaulting party to fulfill the contract), injunctions (prohibiting further breach), rescission (canceling the contract), and restitution (restoring any benefits conferred). These remedies are governed by contract laws, such as the Indian Contract Act, 1872.

The objective of these remedies is not to punish the party at fault but to compensate the innocent party for the loss or inconvenience suffered. Courts assess the extent of damage, the nature of the contract, and the breach to determine the most appropriate remedy.

Objectives of remedies for breach of contract:

• Restoration of Rights

One key objective of remedies for breach of contract is to restore the injured party to the position they would have enjoyed had the contract been performed as agreed. This means compensating them for losses and missed benefits. Courts aim to ensure that no party suffers unfair harm due to another’s failure. This restoration principle helps maintain the fairness and integrity of contractual obligations, ensuring that parties are made whole after a breach.

• Compensation for Losses

Another primary objective is to compensate the aggrieved party for actual losses suffered due to the breach. This is typically achieved through the awarding of damages, which may be compensatory, nominal, or even consequential, depending on the nature of the breach. This financial restitution ensures that the innocent party does not bear the economic burden of the default and that the responsible party is held accountable for the consequences of their actions.

• Enforcement of Legal Obligations

Remedies ensure that legal obligations under a contract are not taken lightly. When specific performance is awarded, the court directs the defaulting party to fulfill their contractual promise. This remedy is typically granted when monetary compensation is inadequate, especially in contracts involving unique goods or property. Enforcing obligations encourages compliance and reinforces the principle that agreements freely entered into must be respected and honored in a legal framework.

• Prevention of Unjust Enrichment

Remedies also aim to prevent a breaching party from unjustly benefiting from their misconduct. If one party receives a benefit without fulfilling their promise, restitution or rescission can be granted. Restitution ensures that any advantage or gain acquired through the breach is returned to the rightful party. This discourages unethical behavior and reinforces that no one should profit from breaking the law or evading contractual responsibilities.

• Deterrence Against Breach

An important objective of contract remedies is deterrence. By making breaches legally and financially burdensome, the legal system discourages parties from casually ignoring their contractual duties. When parties know that breaches carry consequences such as heavy damages or court orders, they are more likely to act in good faith. This fosters a culture of accountability and predictability, which is essential for smooth and reliable business transactions.

• Encouragement of Settlements

The availability of remedies encourages parties to resolve disputes amicably before escalating to litigation. Knowing the legal outcomes and potential liabilities, parties often prefer negotiation or settlement to avoid lengthy court processes. This not only saves time and resources but also promotes mutual understanding. Thus, remedies serve as a backdrop that motivates out-of-court settlements while ensuring that legal recourse is always available if needed.

• Promoting Business Confidence

By providing predictable and enforceable remedies, contract law boosts confidence among businesses and individuals. Parties are more willing to enter contracts when they trust that the legal system will protect their interests in case of non-performance. This assurance fosters economic growth and commercial stability. Remedies make contracts more than just moral obligations—they become enforceable legal commitments that support economic relationships.

• Upholding the Sanctity of Contracts

Ultimately, remedies serve to uphold the sanctity of contracts. When breaches are addressed appropriately, it sends a clear message that contractual promises are legally binding. This strengthens the importance of honoring agreements and discourages arbitrary or dishonest behavior. The legal recognition of remedies supports the principle that contracts are foundational to personal, business, and societal interactions and must be respected at all levels.

Remedies under Indian Contract Act 1872:

The Indian Contract Act, 1872 provides comprehensive legal remedies available to an aggrieved party in the event of a breach of contract. A contract, being a legally binding agreement, imposes obligations on both parties. When one party fails to perform as promised, the other party is entitled to legal recourse. The objective of these remedies is to place the aggrieved party in a position as if the contract had been performed.

Below are the primary remedies available under the Act:

1. Rescission of Contract

Rescission refers to the cancellation of the contract by the aggrieved party. When a contract is rescinded, the parties are restored to their original positions as if the contract had never been made. According to Section 39, if a party refuses to perform or disables themselves from performing the contract, the other party may rescind the agreement. Rescission may also be granted when a contract is voidable due to misrepresentation, fraud, undue influence, or coercion.

Example: A agrees to deliver goods to B. If A fails to deliver, B may rescind the contract and is no longer obligated to pay.

2. Damages

Damages are the most common remedy for a breach of contract. It is monetary compensation awarded to the aggrieved party to cover the loss incurred due to the breach. Under Section 73 of the Indian Contract Act, the injured party is entitled to compensation for losses that naturally arise from the breach or those that both parties knew at the time of contract formation as likely to result from the breach.

Types of Damages:

• Ordinary Damages: These are damages that arise naturally from the breach.
• Special Damages: These are awarded for specific losses that were communicated and agreed upon at the time of contract.
• Exemplary Damages: Awarded not just for compensation but also to punish the wrongdoer.
• Nominal Damages: Symbolic damages awarded when there is a breach but no substantial loss.
• Liquidated Damages: Pre-decided damages stated in the contract.

Example: If A contracts to deliver 100 bags of rice to B and fails, B can claim damages equal to the market difference if the price of rice increased.

3. Specific Performance

Specific performance is an equitable remedy wherein the court directs the breaching party to fulfill their part of the contract. This is granted when damages are not adequate to compensate the aggrieved party. As per the Specific Relief Act, 1963, specific performance is especially used in contracts involving sale of land, unique goods, or where damages cannot be calculated in monetary terms.

Example: A agrees to sell a rare painting to B. A later refuses. The court may compel A to perform the contract and deliver the painting.

4. Injunction

An injunction is a legal order restraining a person from doing a particular act. It is granted when breach involves violation of a negative covenant in the contract. The Indian Specific Relief Act also governs the granting of injunctions. These are preventive in nature, ensuring the breaching party does not continue with the breach.

Types of Injunctions:

• Temporary Injunction: Granted during the pendency of a case.
• Permanent Injunction: Granted as a final remedy upon case conclusion.

Example: If A agrees not to open a competing shop near B, but does so, the court may issue an injunction to prevent A from continuing operations.

5. Quantum Meruit

The term “Quantum Meruit” means “as much as earned” or “as much as deserved”. When a contract is discovered to be void, or when there has been partial performance by one party, that party may claim compensation for the work done or benefit conferred. It applies when:

• A contract becomes void.
• A contract is indivisible, but partial work is accepted.
• One party is prevented from completing the contract by the other.

Example: A contractor is hired to build a house but is stopped midway. He may claim payment for the work completed under quantum meruit.

6. Restitution

Restitution aims to restore the injured party to their original position. It involves returning the benefits or consideration received. This remedy ensures that no party unjustly enriches themselves at the expense of another. Section 65 of the Indian Contract Act provides that when an agreement is discovered to be void, or when a contract becomes void, the party receiving any advantage under such agreement is bound to restore it or compensate the other party.

Example: A pays B in advance for goods, but the contract is later declared void. B must return the advance to A.

7. Reformation

Though not explicitly mentioned in the Indian Contract Act, reformation is a remedy under equity. It involves modifying the terms of the contract to reflect the true intention of the parties when a written contract fails to do so due to mistake or fraud. Indian courts occasionally apply this through equitable jurisdiction.

8. Suit Upon Quantum Meruit (Special Cases)

Apart from unjust enrichment, suits upon quantum meruit are particularly useful in cases where:

• The contract is void, and services are rendered.
• One party abandons or refuses to proceed, and the other seeks compensation for the part performed.

This ensures fair remuneration in incomplete or unexecuted contractual engagements.

Price:

Another essential element of a contract of sale is that there must be some price for the goods. That means, the goods must be sold for some price. According to Sec. 2(10) of the Sale of Goods Act, the term price means “the money consideration for a sale of goods“.

Thus the price is the consideration for contract of sale which should be in terms of money. If the ownership of the goods is transferred for any consideration other than the money, that will not be a sale but an exchange. However, consideration can be paid partly in money and partly in goods.

For e.g., A delivered to B 10 cows valued at Rs.2,000 per cow. B delivered to A 20 bags of rice at Rs.750 per bag and paid the balance of Rs.5,000 in cash in exchange of the cows. This is a valid contract of sale.

Conditions:

In the context of the Sale of Goods Act, 1930, a condition refers to a fundamental stipulation that forms the essence of a contract of sale. It is a term that is so essential to the contract that its breach entitles the aggrieved party to repudiate the contract and refuse to accept the goods.

According to Section 12(2) of the Act, “A condition is a stipulation essential to the main purpose of the contract, the breach of which gives the aggrieved party a right to repudiate the contract.”

For example, if a buyer purchases a new diesel generator and it is delivered as a petrol generator instead, the buyer can reject the goods and cancel the contract since the term breached is a condition related to the core purpose of the transaction.

Conditions may be express (explicitly agreed upon by both parties) or implied by law. Common implied conditions include:

• Condition as to title (seller has the right to sell),

• Condition as to description,

• Condition as to quality or fitness for purpose,

• Condition as to sample.

A breach of condition allows the buyer to reject the goods, terminate the contract, and/or claim damages. However, under some circumstances, the buyer may choose to treat the breach of condition as a breach of warranty and claim damages without repudiating the contract.

A warranty is a stipulation collateral to the main purpose of the contract, that is to say, it is a subsidiary promise. Its breach does not entitle the aggrieved party to repudiate the contract. He can only claim damages. Where there is a breach of warranty on the part of the seller, the buyer must accept the goods and claim damages. Where A purchases 100 bags of wheat from B. Wheat must be fit for human consumption. This is an essential stipulation. Hence it is called as condition. Other stipulations like packing, etc., is a minor one, hence called as warranty. Conditions and warranties may be express or implied. An express condition or warranty is one stated definitely in so many words as the basis of the contract. Implied conditions or warranties are those which attach to the contract by operation of law. The law incorporated them into the contract unless the parties agree to the contrary. A sold to B timber to be properly seasoned before shipment. It was agreed between the parties, that in case of dispute the buyer would not reject the goods but accept or pay for them against documents. It was held that the provision as to seasoning was not a condition but only a warranty. If the timber was not properly seasoned B had to accept it and claim damages for the breach of warranty.

The points of distinction between a condition and warranty can be summed up as under:

(1) A condition is a stipulation essential to the main purpose of a contract while a warranty is astipulation collateral to the main purpose of contract.

(2) Breach of condition gives the right to treat the contract as repudiated while the breach of warranty gives the right to claim for damages alone. The contract cannot be repudiated because the breach of warranty does not defeat the purpose of contract.

(3) A breach of condition may be treated as breach of warranty but a breach of warranty cannot be treated as breach of condition. Let us take an example to make these two terms clear. So where a man buys a particular horse which is warranted quiet to ride. The horse, turns out to be a vicious one. Buyers remedy is to claim damages unless he has expressly reserved the right to return the horse. Suppose instead of buying a particular horse, he specifically asks for a quiet  horse-that stipulations is a condition. Now the buyer can either return the horse or retain the horse and claim damages. (Hartley v. Hymans)

Types of warranties:

When condition to be treated as Warranty

Section 13 of the Sales of Goods Act mentions 3 cases in which a condition sinks or descends to the level of a warranty. A condition descends to the level of a warranty in the following cases:

(1)   Where the buyer waives the condition;

(2)   Where the buyer treats the breach of condition as breach of warranty;

(3)   Where the contract is indivisible and the buyer has accepted the goods or part of the goods.

In all the above three cases the breach of a condition is deemed to be a breach of a warranty and buyer can only claim damages or compensation for the breach of the condition. He cannot repudiate the contract or refuse to take delivery of the goods. In the first two cases, a condition is treated a warranty. at the will of the buyer; but in the third case the breach of condition can be treated only as breach of warranty; for once the buyer has accepted the goods he cannot reject them on any ground. If on subsequent inspection a breach of condition is disclosed, he can treat that as breach of warranty and sue for damages.

Example: Suppose A promises to deliver 100 bales of cotton to B on 1st August, 80. A delivers the bales of cotton on 10th of August. Now in this contract, time is the essence of contract. B can refuse to accept the delivery. But he can also waive this right. He may treat this breach of condition as breach of warranty by accepting the goods and claim damages instead.

Warranties from the Seller

Buyers often overlook the warranties being made by the seller. There is no such thing as “standard warranties.” Warranties vary across industries and from company to company, so be sure to closely review the seller’s promises. Are the goods being sold “as-is”? Is the seller disclaiming the warranties of merchantability or fitness for a particular purpose? If so, this might undo any verbal promises about the goods made by the seller.