Introduction to Contracts

The Indian Contract Act, 1872 is the main source of law regulating the contracts
in India. It determines the circumstances in which promises are made to the
parties to an agreement that shall legally bind them. All of us enter into a
contract on a daily basis. Indian Contract Act deals with the enforcement of
these rights and duties.

Agreement
According to Section 2(e), "every promise and every set of promises forming the
consideration for each other is an agreement." In an agreement, there is a
promise from both the parties. An agreement consists of an offer by one party
and its acceptance by the other.

AGREEMENT = OFFER + ACCEPTANCE

A person cannot enter into an agreement with himself. There has to be a

proposal or offer from one party to the other and the other party has to accept
that proposal or offer. Then the agreement would be formed. It is said that an
acceptance is to offer is what a lighted matchstick to a train of gunpowder. If
there is no offer, there cannot be an acceptance. The parties to an agreement
must have a consensus ad idem while entering into the contract. It means that
they must agree upon the same thing in the same manner. They must have
understood the terms and conditions of the agreement before giving consent.
Example: A promises to deliver his watch to B and in return B promises to pay a
sum of 72,000 to A. This is said to be an agreement between A and B.
Contract
According to section 2(h) of the Indian Contract Act, of 1872, an agreement
enforceable by law is a contract.
"All agreements are not enforceable by law hence, all agreements are not
contracts".
Some agreements are enforced by law and some are not. For example, an
agreement to sell a radio set may be a contract but an agreement to go to
watch a movie may be a mere agreement not enforceable by law. The
agreements which are enforceable in the court of law are only regarded as
contracts. Thus, all agreements are not contracts.

AGREEMENT + ENFORCEABLE IN A COURT OF LAW = CONTRACTS

S. No. Agreement Contract

1. Agreement = offer + acceptance Contract = Agreement +

enforceability

2. All agreements are not contracts All contracts are agreements

3. An agreement may not create a All contracts create a legal

legal obligation. obligation

4. An agreement is not a concluded The contract is concluded and

or a binding contract in all cases. binding on the concerned parties.

Essential Elements of a Valid Contract

Section 10 of the Indian Contract Act talks about the essentials of a valid
contract. "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
the presence of witnesses, or any law relating to the registration of documents."
Element of a Contract
1.​ Offer
2.​ Competent Parties
3.​ Lawful consideration and lawful object
4.​ Free consent
5.​ Not expressly declared and void by law
6.​ An intention to create a legal relationship

It is discussed above that all agreements per se are not contracts. Agreements
must meet certain criteria stated as under -
I.​ Offer - Acceptance: An agreement is the result of a proposal or an offer
by one party and its acceptance by the other.
II.​ Competent parties: the parties to the agreement must be competent to
enter into a contract.
III.​ Lawful consideration and lawful object: There must be a lawful object
and lawful consideration in respect of the agreement.
IV.​ Free consent: there must be free consent of the parties that is free from
coercion, undue influence, fraud, misrepresentation and mistake when
they enter into the agreement.
V.​ Not expressly declared as void by the law: the agreement must not be
the one, which has been declared as void by the law in force at the time of
entering into the agreement.
VI.​ Intention to create a legal relationship: Agreements that create a legal
obligation are only contracts and those agreements that do not intend to
create a legal relationship are not contracts.

Intention to Contract
In the main case Balfour v. Balfour (1919, 5 KB 571), the legitimacy of a
contract entered between a couple was being referred to. The couple went on
leave to England and the wife fell sick in England. The specialists who treated
the wife exhorted her to take complete bed rest and stay in England keeping in
mind the end goal to proceed with the treatment. She stayed in England. At the
point when the leave was over, the husband went to Ceylone where he was
utilised and guaranteed to send a total of $ 30 to the wife consistently for her
stay in England. He sent the amount for quite a while and later on because of
misunderstandings between them, he quit sending the sum. The wife filed the
case to recoup the payments. The Court dismissed it on the ground that the
understanding went into between the couple was not a contract. It was just an
ethical commitment. The decision clearly demonstrates that understandings
that make a legitimate commitment are just contracts and those that don't
mean to make lawful relationships are not contracts.
Agreements that create a legal obligation are only contracts and those
agreements that do not intend to create legal relationship are not contracts.

Proposal or Offer and Acceptance

In order to constitute a valid contract there must be a lawful offer and lawful
acceptance of that offer. Proposal and offer both are used in the same sense
and there is no difference in their meanings. It is defined under section 2(a) -
"When one person signifies to another his willingness to do or to abstain from
doing anything with a view to abstaining the ascent of that offer such or such
act or abstinence he is said to make a proposal."
The person who makes the proposal is called the proposer, offeror or promisor.
The person to whom the offer is made is called the offeree or promisee.
I.​ An offer and acceptance must be definite and certain.
II.​ The promisor and promisee must communicate properly with each other.
Communication in electronic form or over e-mails also amounts to the
communication of offer and acceptance.
III.​ For A contract to be valid, there must exist consensus ad-idem. It means
the identity of minds between the parties to a contract.
IV.​ There will be no agreement, if the proposal is made without the intention
of creating legal rights and obligations.
V.​ An offer lapses by revocation or withdrawal.
VI.​ Any offer can be revoked before acceptance.

Example: A has two houses namely X and Y. A offers to sell house X to B and B
accepts thinking that it is house Y. Here is no identity of minds and hence not
enforceable.

In Cooke v. Oxley (1790) 3 T R 65, A offered to sell 266 hog sheds at a certain
price and promised to keep it open for acceptance by B till 4 PM of that day.
Before that time A sold them to C, and B accepted them before 4 PM but after
the revocation by A. It was held that the offer was already revoked.

In Lalman Shukla v. Gauri Dutt (1913) 11 ALJ 489 the court held that an action
without the knowledge of the proposal is no acceptance.

In Carlill v. Carbolic Smoke Ball Company (1983) IQB256 advertised in the

newspaper that whosoever would take smoke balls, manufactured by it,
according to the printed instructions would not contract influenza. The company
offered a reward of $100 to anyone who contracted influenza after taking its
smoke balls according to the printed instructions. It was added that $1,000 was
deposited with Alliance Bank to show the sincerity of the company. Mrs Carlill
used the smoke balls according to the directions given but contracted influenza.
It was held that the offer was a general one and Mrs, Carlill had accepted it by
acting according to the advertisement and therefore the company could not get
away from the responsibility by saying that it was a mere puff. She was entitled
to get the reward.
Consideration
Section 2(d) of The Indian Contract Act, 1872 defines consideration as given
under: "When, at the desire of the promisor, the promisee or any other person
has done or abstained from doing, or does or abstains from doing or promises
to do or abstain from doing something, such act or abstinence or promise is
called a consideration for the promise."

Consideration is an important element in a contract. A contract without

consideration is not valid. Consideration means quid pro quo i.e., 'something in
return' for the offer. It can be in the nature of an act or forbearance, which may
be past, present or future. It should be real, competent and have some value in
the eyes of the law.

Essential Ingredients of Consideration

I.​ Consideration must be given at the desire of the promisor.
II.​ Consideration must be given by the promisee or any other person.
III.​ Consideration may be present, in the past or future.
IV.​ There must be some act of abstinence or promise by the promisee, which
constitutes consideration.

Illustration:
Let's consider a scenario where A wants to sell her laptop to B. They agree on a
price of INR 20,000 for the laptop.
1.​ Offer and Acceptance:
A Offers to sell her laptop to B for INR 20,000.
B agrees to buy the laptop for INR 20,000.
2.​ Consideration:
In this scenario, the consideration is the mutual exchange of value. A's
Consideration is the laptop, and B's Consideration is the payment of INR
20,000.

In the case of Durga Prasad v. Baldeo (1880, 3 All 221), the aggrieved party
constructed certain shops in a market at their own expense upon the request of
the town's Collector. The shops became a subject of dispute between the parties.
The other party, acknowledging that the aggrieved party had invested money in
the construction, promised to pay a commission on the goods they sold through
the shops. However, the aggrieved party's attempt to recover the commission
was rejected by the court.
The court's decision was based on the fact that the construction was carried out
not according to the wishes of the other party, but at the Collector's request.
Therefore, the promise to pay the commission was not legally enforceable, and
the defendants were not held liable. This case highlights the principle that
consideration must be provided at the request of the promisor. If consideration
is given voluntarily or due to the influence of a third party, it would not be
considered valid in a contract.

Capacity to Contract
Section 11 of The Indian Contract Act specifies that every person is competent
to contract :
I.​ He should not be a minor i.e., an individual who has not attained the age
of majority i.e., 18 years in normal case and 21 years if the guardian is
appointed by the Court.
II.​ He should be of sound mind while making a contract. A person who is
usually of unsound mind, but occasionally of sound mind, can make a
contract when he is of sound mind. Similarly, if a person is usually of
sound mind, but occasionally of unsound mind, may not make a valid
contract when he is of unsound mind.
III.​ He is not disqualified from contracting by any other law to which he is
subject.
Example: A minor falsely exaggerates his age and takes conveyance of
an engine auto in the wake of executing a promissory note for the dealer
at its cost. The minor can't be constrained to pay the sum to the
promissory note, yet the Court on Fairgrounds may arrange for the minor
to give back the auto to the broker, in the event that it is still with the
minor.

Position of Minor
The case of Mohori Bibee v. Dharmodas Ghoshe (1903) 30 IA. 114 (P.C) stands
as a pivotal case regarding the nature of agreements involving minors. In this
instance, the plaintiff, Dharmodas Ghoshe, who was a minor at the time,
pledged his property to the defendant, a money lender. The court ruled that
contracts made by minors are inherently void from the outset (ab initio). The
Indian Majority Act established the age of majority as 18 years, except when a
guardian had been appointed by the Court, where it was 21 years. An
amendment to the Act has since revised the age of majority to 18 years for all
cases.
In another case, Kalus Mittelbachert v. East India Hotels Ltd., (1999 ACJ 287,
AIR 1997 Delhi 201), there was a contract between Lufthansa, a German airline,
and Hotel Oberoi, New Delhi that the crew of the airline would stay in latter's
hotel. The plaintiff, a co-pilot of the airline stayed in the hotel and sustained
serious head injuries on diving in the swimming pool of the hotel. This resulted in
paralysis and after a battle of 13 years with his health conditions he died.
Though he had no direct contract with the hotel but he succeeded as a
beneficiary and was awarded compensation for the damage caused. Being a
5-star hotel extra care and caution were expected out of the hotel and thus
exemplary damages of 50 lakh were awarded.

Free Consent
It is one of the essential elements of a valid contract as it is evidenced by
section 10 which provides that all agreements are contracts if they are made by
the free consent of the parties. According to Section 14, consent is said to be
free when it is not caused by :
I.​ Coercion, or
II.​ Undue influence, or
III.​ Fraud, or
IV.​ Misrepresentation, or
V.​ Mistake.
According to Section 13, "Two or more persons are said to consent when they
agree upon the same thing in the same sense." Thus, consent involves the
identity of minds with respect to the subject matter of the contract. In English
Law, this is called 'consensus ad-idem'.
When there is no consent at all, the agreement is void ab initio, i.e., it is not
enforceable at the option of either party. When there is consent but it is not free
(i.e., when it is caused by coercion or undue influence or fraud or
misrepresentation), the contract is usually voidable at the option of the party
whose consent was so caused.
Example: X has one Maruti car and one Fiat car. He wants to sell a fiat car. Y
does not know that X has two cars. Y offers to buy X's Maruti car for 7 50,000. X
accepts the offer thinking it to be an offer for his Fiat car. Here, there is no
identity of mind in respect of the subject of the subject matter. Hence there is no
consent at all and the agreement is void ab initio.

Types of Contracts
I.​ On the basis of formation: Express, Implied, Quasi Contracts.
II.​ On the basis of the nature of consideration: Bilateral contracts and
unilateral contracts.
III.​ On the basis of execution: Executed and executory contracts
IV.​ On the basis of validity. Valid, void, voidable, illegal, and unenforceable
contracts.

On the basis of Formation

On this basis, Contracts can be classified into three groups, namely Express,
Implied, and Quasi Contracts.
I.​ Express Contracts: The Contracts where there is expression or
conversation are called Express Contracts.
Example: A has offered to sell his house and B has given acceptance. It is
an Express Contract.
II.​ Implied Contract: The Contracts where there is no expression are called
Implied Contracts.
Example: Sitting in a bus can be taken as an example of the implied
contract between the passenger and the owner of the bus.
III.​ Quasi Contract: In the case of a Quasi Contract there will be no offer and
acceptance so, there will be no Contractual relations between the
partners. Such a Contract which is created by Virtue of law is called a
Quasi Contract. Sections 68 to 72 of the Contract Act read about the
situations where the court can create Quasi Contract.
Example: A case on this occasion is Chowal v. Cooper. In this case, A's
husband is no more. She is very poor and therefore not capable of
meeting even the cost of cremation. B, one of her relatives, understands
her position and spends his own money on cremation. It is done without
A's request. Afterwards, B claims his amount from A where A refuses to
 pay. Here court creates a Quasi Contract between them under section 68
i.e., when necessaries are supplied.

On the basis of Nature of Consideration

On this basis, Contracts are of two types. Namely Bilateral Contracts and
Unilateral Contracts.
I.​ Bilateral Contracts: If considerations in both directions are to be moved
after the contract, it is called a Bilateral Contract.
Example: A Contract has been formed between X and Y on 1st January.
According to this X has to deliver goods to Y on 3rd January and Y has to
pay the amount on the same day. It is a bilateral contract.
II.​ Unilateral Contract: If considerations are to be moved in one direction
only after the Contract, it is called Unilateral Contract.
Example: A has lost his purse and B is its finder. Thereafter B searches for
A and hands it over to A. Then A offers to pay ₹ 1000 to B to which B gives
his acceptance. Here, after the Contract consideration moves from A to B
only. It is a Unilateral Contract.

On the basis of Execution

On this basis, Contracts can be classified into two groups, namely, Executed and
Executory Contracts. If performance is completed, it is called an executed
contract. In cases where contractual obligations are to be performed in the
future, it is called an executory contract.

On the basis of Validity

On this basis, Contracts can be classified into five groups. namely Valid, Void,
Voidable, Illegal and Unenforceable Contracts.
I.​ Valid: The Contracts which are enforceable in a court of law are called
Valid Contracts. To attain Validity the Contract should have certain
features like consensus ad idem, Certainty, free consent, two-directional
consideration, fulfilment of legal formalities, legal obligations, lawful
object, capacity of parties, possibility of performance, etc.
Example: There is a Contract between X and Y and let us assume that
their contract has all those above-mentioned features. It is a Valid
Contract.
 II.​ Void: A Contract which is not enforceable in a court of law is called a Void
Contract. If a Contract is deficient in any one or more of the above
features (Except free consent and legal formalities). It is called a Void
Contract.
A void contract cannot be made valid by parties to the contract by their
consent.
Example: there is a Contract between X and Y where Y is a minor who has
no capacity to make a contract. It is a Void Contract.
III.​ Voidable: A Contract which is deficient in only free consent, is called a
Voidable Contract. That means it is a Contract which is made under a
certain pressure either physical or mental. At the option of the suffering
party, a voidable contract may become either Valid or Void in the future.
Example: There is a Contract between A and B where B has forcibly made
A involved in the Contract. It is voidable at the option of A.
IV.​ Illegal: If the contract has an unlawful object it is called an Illegal
Contract.
Example: There is a contract between X and Z according to which Z has
to murder Y for consideration of ₹ 10000 from X. It is an illegal contract.
V.​ Unenforceable: A contract which has not properly fulfilled legal
formalities is called an unenforceable contract. That means an
unenforceable contract suffers from some technical defects like
insufficient stamp etc. After rectification of that technical defect, it
becomes an enforceable or valid contract.
Example: A and B have drafted their agreement on ₹ 10 stamp where it is
to be written actually on ₹ 100 stamp. It is an unenforceable contract.

The difference between a Void Contract and a Voidable Contract

Basis of Void Contract Voidable Contract

Difference

Legal Provisions Section 2(j) of Indian Section 2(i) of Indian

Contract Act Contract Act

Meaning A contract which ceases to It is a contract which may

be enforceable by law either be affirmed or rejected
becomes void. at the option of one of the
parties to the contraction
 grounds of coercion, undue
influence, fraud or
misrepresentation.

Nature It is valid at its inception It remains enforceable till it is

but later culminates into a declared void by a competent
void contract. court.

Claim for It is allowed only to the The injured has the right to
Damages extent to restore any initiate action for damages.
benefit received by the
party, on the grounds of
equity.

Validity Any contract that turns A voidable contract may

void, cannot thereafter become valid upon the lapse
become valid. of time, affirmation,
ratification, waiver of right,
or acquiescence of the party
whose consent was not free.

Unlawful Agreement
According to section 10, a contract must be made for a lawful consideration and
lawful object.
If either the consideration or the object is an action or omission prohibited by
law, it results in an illegal contract.
The agreements entered into for any unlawful or illegal object or consideration
cannot be enforced under the law and are thus void (sec. 24).
In the event that the object of the understanding is to play out an unlawful
demonstration, then the agreement is unenforceable. The object of the assent
ought not to be unlawful, improper or contradictory to society. As for example,
A promises to obtain for B employment in the public service and B promises to
pay ₹ 1,000 to A. The agreement is void, as the consideration for it is unlawful.
Again, A, B and C enter into an agreement for the division among them of gains
acquired or to be acquired by fraud. The agreement is void as its object is
unlawful.
Let us suppose that A, who is B's mukhtar, promises to exercise his influence, as
such, with B in favour of C and C promises to pay ₹ 1,000 to A. The agreement is
void because it is immoral. Any agreement for restraint of trade, marriage and
legal proceedings is void as the object of the agreement is unlawful.

Wagering Agreement
The word 'wager' means 'a bet' something stated to be lost or won on the result
of a doubtful issue, and, therefore, wagering agreements are nothing but
ordinary betting agreements. Section 30 of the Indian Contract Act talks about
wagering agreements, which reads as 'agreements by way of wager are void'.
The section does not define 'wager.'
Section 30 states that, "Agreements by way of wager are void, and no suit shall
be brought for recovering anything alleged to be won on any wager, or
entrusted to any person to abide by the result of any game or other uncertain
event on which any wager is made".

Essentials of Wagering Agreements:

I.​ Promise to pay money or sums of money worth
II.​ Uncertain event
III.​ One to lose, the other to win
IV.​ No control over the event
V.​ Past, present or future events
VI.​ No other interest in the event
VII.​ Unlawful event/lawful event
A Wagering Agreement is void and unenforceable in a court of law.

Contingent Contract
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. Generally, insurance
contracts are contingent contracts. Life Insurance is not a contingent contract
as the death of a man is a certain event.
Example: A contracts to pay B ₹ 10,000 if B’s house is burnt. This is a contingent
contract.

Difference between a Wagering Agreement and a Contingent

Contract
 Basis of Wagering Agreement Contingent Contract
Distinction

Reciprocal Consists of reciprocal It may or may not consist of

Promises promises. reciprocal promises.

Main/collateral Future events are essential A future event is collateral to

future event to the contract. the contract

Interest of If parties have no other Parties may have other

Parties interest in the subject matter interests as well.
of the agreement except
winning or losing the
wagering amount.

Nature It is always of a contingent It is always of a wagering

nature. nature.

Validity Void Valid

Discharge of a Contract
Discharge of a contract means termination of the contractual relations between
the parties to a contract. A contract is said to be discharged when the rights
and obligations of the parties under the contract come to an end.

Modes of discharge of contract:

I.​ By performance
II.​ By mutual agreement
III.​ By operation of law
IV.​ By impossibility of performance
V.​ By lapse of time
VI.​ By breach

I.​ Discharge by Performance:

Each of the parties to the contract is bound to perform its part of the obligation.
When the parties have made their due performance of the contract, their
liability under the contract comes to an end, in such a case, the contract is said
to be discharged by performance.
Example: A offers to sell his dining set to B for ₹ 10,000. B pays ₹ 10,000 to A
and A delivers his dining set to B. Here the contract gets discharged by
performance as both the parties fulfilled their promises.

II.​ Discharge by Mutual Agreement:

Since a contract is created by mutual agreement, it can also be discharged by
mutual agreement. A contract can be discharged by mutual agreement in any
of the following ways :
A.​ Novation [Section 62]: Novation implies the substitution of another
agreement for the first contract.
Illustration: A owes B ₹ 10,000. A enters into an agreement with B and
gives him a mortgage of A's estate for ₹ 5,000 in place of the debt of ₹
10,000. This is a new contract and extinguishes the old.
B.​ Rescission [Section 62]: Rescission means cancellation of the contract by
any party or all the parties to a contract.
Illustration: A enters into an agreement with B for buying certain
machine parts for their project. Before the agreement ends, A and B
change certain terms of the agreement and include those terms in the
agreement.
C.​ Alteration [Section 62]: Alteration implies an adjustment in the terms of
an agreement with common assent of the gatherings. Adjustment
releases the first contract and makes another agreement. In any case,
gatherings to the new contract must not change.
D.​ Remission [Section 63]: Remission implies acknowledgement by the
promisee of a lesser satisfaction of the guarantee made. As per Section
63, "Every promisee may dispense with or remit, wholly or in part, the
performance of the promise made to him, or may extend the time for
such performance, or may accept instead of it any satisfaction which he
thinks fit."
Illustration: A owes B under a contract a sum of money the amount of
which has not been ascertained. A without ascertaining the amount gives
B a random sum. B in satisfaction thereof accepts the sum given by A.
This is a discharge of the whole debt, whatever may be the amount.
E.​ Waiver: It implies the deliberate surrender of a right under the contract.
Thus, it amounts to releasing a person of a certain legal obligation under
a contract.
 Illustration: Y employs Z to paint a picture for him. Later on, Y forbids
him from doing so. Z is no longer bound to perform the promise.
F.​ Merger: When the inferior rights of a person under a contract merge with
superior rights under a new contract, the contract with the inferior rights
will come to an end.
Illustration: X was a tenant of Y's house. X purchased this house. X's
tenancy right is merged with his ownership rights i.e., the tenancy
agreement will come to an end when X becomes the owner of the house.
Tenancy right is an inferior right as compared to the ownership right
which is a superior right.
III.​ Discharge by Operation of Law:
A contract may be discharged by operation of law in the following cases :
A.​ By Death of the Promisor: A contract including the individual aptitude or
capacity of the promisor is released on the demise of the promisor.
B.​ By Insolvency: When a man is pronounced indebted, he is released from
his risk up to the date of his bankruptcy.
C.​ By Unauthorised Material Alteration: If any gathering makes any
material modification in the terms of the contract without the approval of
the other party, the contract arrives at an end.
D.​ By the Identity of Promisor and Promisee: When the promisor turns into
the promisee, alternate gatherings are released.
Illustration 1: If A enters into a contract to sell his property to B, and B
subsequently acquires the ownership of the property, then the contract is
discharged by operation of law. This is because the right to sell the
property merges with the right of ownership, and the contract becomes
void.
Illustration 2: if A enters into a contract with B to deliver a specific
product, and B later agrees to accept a different product without the
consent of A, then the contract is discharged by operation of law.
IV.​ Discharge by Impossibility of Performance
The effects of the impossibility of the performance of a contract under section
56 may be discussed under the following heads:
A.​ Effects of Initial Impossibility: "An agreement to do an act impossible in
itself is void". This section is based on the maxim ‘les non cogit ad
impossibilia’ implying that the law does not compel a man to do what he
can possibly perform.
 Example: A contracts to marry B being already married to C, and being
forbidden by the law to which he is subject to practice polygamy. The
arrangement by A to marry B is void.
B.​ Effects of Supervening Impossibility: The performance of the contract
may be possible when the contract is entered into but because of some
event, the performance may subsequently become impossible or unlawful.
For example, A contracts to take in cargo for B at a foreign port. A's
government afterwards declares war against the country in which the
port is situated.
The contracts become void when war is declared.
Supervening impossibility takes place by the following:
I.​ Destruction of the subject matter
II.​ Death or incapacity
III.​ Non-existence of state of things having an effect directly or
indirectly on the contract
IV.​ An outbreak of war
V.​ Change or amendments in law.
Illustration 1: X agreed to sell his car to Y for ₹ 1 lakh and deliver it after two
months. After a week, X met with an accident and the car was completely
destroyed. The contract gets discharged by the impossibility of performance as
the car was completely destroyed.
Illustration 2: If A enters into a contract with B to deliver a specific product, but
the product is destroyed due to a natural disaster, then the contract is
frustrated, and both parties are discharged from their obligations under the
contract.
V.​ Discharge by Lapse of Time:
An agreement is released in the event that it is not performed or upheld inside a
predefined period, called the period of limitation.
The Limitation Act, of 1963 has endorsed the distinctive periods for various
contracts, eg, the time of constraint for practising the right to recoup an
obligation is 3 years, and to recuperate a steady property is 12 years. The
legally binding gatherings can't practice their rights after the expiry of the time
of restriction.
Illustration: A took ₹ 50,000/- loan from B and agrees to pay instalments every
month for the next 6 years. But, A failed to pay even one instalment. B calls him
a few times but then gets busy and takes no action. Three years later, he
approaches the court to help him to get his money back. But the court rejects
his suit since he has crossed the time limit of three years to recover his debts.
VI.​ Discharge by Breach of Contract:
A contract is said to be discharged by breach of contract if any party to the
contract refuses or fails to perform his part of the contract or his act makes it
impossible to perform his obligation under the contract. A breach of contract
may occur in the following two ways:
A.​ Anticipatory Breach of Contract: Anticipatory breach of contract occurs
when the party declares his intention of not performing the contract
before the performance is due. For example, A is to supply certain goods
to B, on 1st December and he informs B by 1st November that we will not
be able to deliver it by said date decided by them. In this case, A has
committed an anticipatory breach of contract.
B.​ Actual Breach of Contract: Actual breach of contract occurs when any
party to a contract refuses or fails to perform his part of the contract at
the time fixed for performance, it is called an actual breach of contract on
the due date of performance. For example: A is to supply certain goods to
B on 1st December but fails to do so. Then in that case he has made an
actual breach.
Illustration: A agrees to supply 20 litres of oil to B on 1st June 2014. On
1st June 2014, A does not supply the oil. Then A has breached the
contract. Suppose A has supplied the oil but B does not accept the oil,
then B has breached the contract. In the first instance, B is entitled to
receive compensation from A. In the latter instance, A is entitled to
receive compensation from B.

Remedy for Breach of Contract

When one of the parties fails to carry out its mutually agreed obligation then
the aggrieved party may have legal recourse in any of the following manners:
1.​ Specific performance of the Contract: The distressed party can file a
suit for the specific performance of the contract in place of suing the
guilty party to make compensation for the breach or make him
specifically perform the obligation mentioned in the contract.
2.​ Injunction: The aggrieved party may bring a permanent or temporary
injunction to restrain the guilty party from making a breach of contract.
3.​ Damages: Section 73 of the Contract Act lays down the provision relating
to damages. It provides that the party, who breaches a contract, is liable
 to compensate the injured party for any loss or damage caused, due to
the breach of contract.
For compensation to be payable, Two things should be taken into consideration
I.​ The loss or damage should have arisen as a natural consequence of the
breach, or
II.​ It should have been something the parties could have reasonably
expected to arise from a breach of the contract.

Under this section, the burden of proof lies on the injured party. This section,
however, provides that compensation shall not be awarded for any remote or
indirect loss sustained by the parties.

Section 73 also provides that the same principles will apply for breach of a
quasi-contractual obligation, i.e., in the event that an obligation resembling that
created by contract has not been discharged, the injured party is entitled to
receive compensation as if a contractual obligation has been breached.
Damages under Section 73 of the Act are compensatory and not penal in nature.

The explanation to this section further provides that in estimating the loss or
damage arising from a breach of contract, the existing cost of remedying the
inconvenience caused may be taken into account.

Example: A agrees to deliver 40 bags of rice to B for ₹ 20,000 on 5th July 2014.
On 5th July 2014, A delivered only 20 bags of rice to B. B is entitled to damages
from A for the loss that he suffered because of A (non-delivery of 20 bags of
rice).