PROJECT MANAGEMENT AND LEGAL ISSUES (HUM - 4215)

Chapter 2 - Law of Contract

 Contract: The Contract Act in Bangladesh, officially known as the "Contract Act, 1872," provides
a legal framework for forming and enforcing contracts in Bangladesh. According to this act, a
contract is defined as follows:

Section 2(h) of the Contract Act, 1872: "A contract is an agreement enforceable by law."

1. Agreement: A contract begins with an agreement between two or more parties. An agreement is
reached when one party makes a proposal (offer) and the other party accepts it. The offer and
acceptance must create a mutual understanding of the terms and objectives of the contract.
2. Enforceable by Law: For an agreement to be considered a contract, it must be legally enforceable.
This means that if one party fails to fulfill their obligations under the contract, the other party can
seek legal remedies through the courts. The Contract Act outlines the legal principles and
requirements for a contract to be valid and enforceable.

 According to Salmond, a contract is "an agreement creating and defining obligations between the
parties."
 According to Sir William Anson, "A contract is an agreement enforceable at law made between
two or more persons, by which rights are acquired by one or more to acts or forbearances on the
part of the other or others."

Additionally, the Contract Act of 1872 provides various provisions and rules regarding the
formation, interpretation, and performance of contracts in Bangladesh. These provisions cover a
wide range of contract-related matters, including offer and acceptance, consideration, capacity to
contract, the legality of the object, and more. It also deals with different types of contracts, such as
contracts of sale, contracts of guarantee, contracts of agency, and others. These rules and provisions
help establish a legal framework for commercial and personal transactions in Bangladesh.

 ‘’All Contracts are Agreements, but all Agreements are Contracts’’

An agreement comes into existence whenever one or more persons promise to one another
to do or not to do something. "Every promise and every set of promises, forming the consideration for
each other, is an Agreement-Sec- 2(e). Some agreements cannot be enforced through the courts of law,
e.g., an agreement to play cards or go to a cinema. An agreement, which can be enforced through the
courts of law, is called a contract.

For example, Mr. ‘X’ invites Mr. ‘Y’ for dinner, and Mr. ‘Y’ agrees with Mr. ‘X’. Here, Mr. ‘Y’
promises to Mr. ‘X’, but it will not be a contract because it was not enforced by the court of law. On
the other hand, Mr. ‘X’ promises Mr. ‘Y’ to sell land at 500000 TK. It will be a contract because it can
be enforced through a court of law. So here we find that all contracts are agreements, but not all
agreements are contracts.

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 PROJECT MANAGEMENT AND LEGAL ISSUES (HUM - 4215)

 Essential elements of Contract: An agreement becomes enforceable by law when it fulfills certain
conditions. These conditions, which may be called the Essential Elements of a Contract, are
explained below:

1. Offer and Acceptance: There must be a lawful offer by one party and a lawful acceptance of the
offer by the other party or parties. The adjective "lawful" implies that the offer and acceptance
must conform to the rules laid down in the Indian Contract Act regarding offer and acceptance.
2. Intention to create Legal Relationship: There must be an intention (among the parties) that the
agreement shall result in or create legal relations. An agreement to dine at a friend's house is not
an agreement intended to create legal relations and is not a contract. But an agreement to buy and
sell goods or an agreement to marry, are agreement intended to create some legal relationship and
is therefore a contract, provided the other essential elements are present.
3. Lawful Consideration: Subject to certain exceptions, an agreement is legally enforceable only
when each of the parties to it gives something and gets something. An agreement to do something
for nothing is usually not enforceable by law. The something given or obtained is called
consideration. The consideration may be an act (doing something), forbearance (not doing
something), or a promise to do or not to do something. Consideration may be past (something
already done or not done). It may also be present or future. But only those considerations are valid
which are "lawful".
4. Capacity of Parties: The parties to an agreement must be legally capable of entering into an
agreement; otherwise, it cannot be enforced by a court of law. Want of capacity arises from
minority, lunacy, idiocy, drunkenness, and similar other factors. If any of the parties to the
agreement suffers from any such disability, the agreement is not enforceable by law, except in
some special cases.
5. Free Consent: In order to be enforceable, an agreement must be based on the free consent of all
the parties. Genuine consent is absent if the agreement is induced by coercion, undue influence,
mistake, misrepresentation, or fraud. A person guilty of coercion, undue influence, etc., cannot
enforce the agreement. The other party (the aggrieved party) can enforce it, subject to the rules laid
down in the Act.
6. Legality of the Object: The object for which the agreement has been entered into must not be
illegal, immoral, or opposed to public policy.
7. Certainty: The agreement must not be vague. It must be possible to ascertain the meaning of the
agreement, for otherwise it cannot be enforced.
8. Possibility of Performance: The agreement must be capable of being performed. A promise to do
an impossible thing cannot be enforced.
9. Void Agreements: An agreement so made must not have been expressly declared to be void. Under
the Contract Act of 1872, there are five categories of agreements that are expressly declared to be
void. They are:

 Agreement in restraint of marriage. (Sec. 26)

 Agreement in restraint of trade. (Sec. 27)
 Agreement in restraint of proceedings. (Sec. 28)
 Agreements having uncertain meaning. (Sec. 29)
 Wagering agreement. (Sec. 30)

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10. Writing, Registration, and Legal Formalities: An oral contract is a perfectly good contract,
except in those cases where writing and/or registration are required by some statute. In India
writing is required in cases of lease, gift, sale, and mortgage of immovable property: negotiable
instruments; memorandum and articles of association of a company, etc. Registration is
compulsory in cases of documents coming within the purview of Section 17 of the Registration
Act, e.g., mortgage deeds covering immovable property. The terms of an oral contract are
sometimes difficult to prove. Therefore, important agreements are usually entered into writing even
in· cases where writing is not compulsory.

The elements mentioned above must all be present. If any one of them is absent, the agreement
does not become a contract. An agreement that fulfills all the essential elements is enforceable by
law and is called a contract. From this, it follows that every contract is an agreement, but not all
agreements are contracts.

 Void and Voidable Agreement: An agreement that does not satisfy the essential elements of a
contract may be either void or voidable. The definitions of these terms are given below:
1. Void Agreement: "An agreement that is not enforceable by law is said to be void."- Sec. 2(g). A
void agreement has no legal effect. It confers no rights to any person and creates no obligations.
Examples of Void Agreement: An agreement made by a minor; agreements without
consideration; certain agreements against public policy; etc. These agreements are void.
Agreements that become void: An agreement that was legal and enforceable when it was entered
into may subsequently become void due to the impossibility of performance, change of law, or
other reasons. When it becomes void, the agreement ceases to have legal effect. Certain agreements
are expressly declared to be void, even though they may otherwise satisfy Section 10 of the
Contract Act. (Would have been otherwise enforceable contracts). They are as follows:
 Section 26 of the Contract Act provides that every agreement in restraint of the marriage of any
person, other than a minor, is void.
 Section 27 of the Act states that every agreement by which anyone is restrained from exercising a
lawful profession, trade, or business of any kind is to that extent void.
 According to Section 28 of the Act, Private Individuals cannot, by agreement, alter or vary their
personal law or Statute law.
 Section 29 implies that agreements, the meaning of which is not certain or capable of being made
certain, are void.
 Section 30 of the Contract Act clearly states that agreements by way of wages are void.
 Section 56(1) provides that agreements to do an act impossible in itself are void.
 Sections 24, 57, and 58 maintain that agreements whose objects or considerations are unlawful
are void.
2. Voidable Agreement: A voidable agreement can be avoided, set aside by some of the parties to
it. Until it is avoided, it is a good contract. "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."-Sec. 2(i). Examples of voidable contracts are contracts brought about by coercion,
undue influence, misrepresentation, etc. ‘X’ coerces ‘Y’ into entering into a contract for the sale
of ‘Y's house to ‘X’; this contract can be avoided by ‘Y’. ‘X’ cannot enforce the contract. But ‘Y’,
if he so desires, can enforce it against ‘X’.

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 Formation of Contract: All contracts are made by the process of a lawful offer by one party and
the lawful acceptance of the offer by the other party. ‘X’ says to ‘Y’, "Will you buy my house for
TK 500000?" This is an offer. If ‘Y’ says, "Yes", the offer is accepted and a contract is formed.

 Proposal: An "offer" involves the making of a "proposal". The term proposal is defined in the
Contract Act as follows: "When one person signifies to another his willingness to do or to abstain
from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he
is said to propose" -Sec. 2(a).

 Offer: A proposal is called an offer. The promisor or the person making the offer is called the
offeror. The person to whom the offer is made is called the offeree.

 Promise and Acceptance: "When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise."-Sec.
2(b). "The person proposing is called the 'promisor' and the person accepting the proposal is called
the 'promisee'." -Sec. 2(c).
Example of offer and acceptance: ‘X’ offers to sell his motor car to ‘Y’ at the price of TK. 5000.
This is a proposal. ‘X’ is the promisor or the offeror. ‘Y’ is the offeree. If ‘Y’ agrees to buy the car
at the price stated, ‘Y’ becomes the promisee or the acceptor. There is a contract.

 Rules regarding offer: The Contract Act contains various rules regarding offer or proposal. They
can be summed up as follows:
1. An offer may be expressed or may be implied from the circumstances: An offer may be made
in two ways:
 by words, spoken or written, and
 by conduct.

When an offer is made by stating so in words or in writing, it is called an Express offer. When an
offer is implied from the conduct of a person, it is called an implied offer.
Example of Express Offer: ‘P’ puts up a notice offering to pay a reward of TK. 5 to any student
who finds out and returns a book lost in the college. ‘Q’, a student, reads the notice and then finds
and brings the book to ‘P’. P's notice is an offer, and Q’ is the acceptor.
Example of Implied Offer: A transport company runs tramway cars along the streets. This is an
offer by the company to carry passengers at the scheduled fares. The offer is accepted when a
passenger gets up on a tram with the intention of becoming a passenger.
"In so far as the proposal or acceptance of any promise is made in words, the promise is said to be
expressed. In so far as such proposal or acceptance is made otherwise than in words, the promise
is said to be implied’’-Sec. 9.
2. An offer may be made to a definite person, to some definite class of persons, or to the world
at large: An offer made to a definite person or a definite class of persons is called a Specific offer.
An offer sent to all persons (or the world at large) is called a General offer.
Example of an offer that is made to a definite person: ‘X’ offers to sell his motor car to ‘Y’ at
the price of TK. 5000 and ‘Y’ agree with ‘X’ to buy the motor car.

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Example of an offer that is made to some definite class of persons: ‘X’ puts up a notice offering
to pay a reward of TK. 5 to any student who finds out and returns a book lost in the college. ‘Y’, a
student, reads the notice and then finds and brings the book to ‘X’. X's notice is an offer, and Y’ is
the acceptor.
Example of an Offer which is made to the world at large: A transport company runs tramway
cars along the streets. This is an offer by the company to carry passengers at the scheduled fares.
The offer is accepted when a passenger gets up on a tram with the intention of becoming a
passenger.
3. Legal relationship is required: The offer must be capable of creating a legal relationship. A social
party or an invitation to play cards is not a legal relationship. Therefore, an offer to such an affair
does not lead to a binding contract.
4. The terms of the offer must be certain, definite, unambiguous, and not vague: ‘X’ says to ‘Y’,
"I will give some money if you marry ‘Z’ ". This is not an offer that can be accepted because the
amount of money to be paid is not certain.
5. A mere statement of intention is not an offer: A distinction is usually made between an "offer"
and "a statement of intention". Price lists, catalogues, and enquiries for customers are merely
statements of intention. They are not regarded as offers but as invitations to others to make offers.
An advertisement in a newspaper or elsewhere may be so worded that it amounts to an offer. But
ordinarily, an advertisement is considered to be an invitation to make offers. Similarly, in an
auction sale, articles are displayed with the intention that the bidders present may bid for them may
make an offer. Thus, in an auction sale, a bid is an offer, while the fall of the hammer signifies the
acceptance of the auctioneer
6. An offer must be communicated to the offeree: A person cannot accept an offer unless he knows
of the existence of the offer. ‘P’ offers a reward to anyone who returns his lost dog. ‘Q’ finding the
dog brings it to ‘P’ without having heard of the offer. Held, he was not entitled to the reward. In
this case, it was argued that a man cannot accept an offer without intending to do so, and he cannot
intend to accept an offer of which he was ignorant. ‘G’ sent his servant ‘L’ in search of his missing
nephew. Subsequently, ‘G’ announced a reward for information concerning the boy. ‘L’ brought
back the missing boy, without having known of the reward. Held, there was no contract between
‘L’ and ‘G’, and the reward cannot be claimed.
7. An offer may be conditional: An offer may be made subject to conditions. In such cases, the
conditions must be clearly communicated to the offeree. If a person accepts an offer without
knowledge of the conditions, the offeror cannot claim fulfillment of the conditions. But if the
conditions are clearly written or expressed and should have been known to the offeree, he cannot
plead ignorance of the conditions.
8. Printed Contracts: Printed Contracts (or Standard Forms of Contracts) often contain a large
number of terms and conditions that exclude liability under the contract. For example, the Life
Insurance Corporation of India, the Railway Administration, Statutory Corporations, and big
companies issue printed forms of contract. The individual is bound to sign them, whether he likes
the terms or not. Previously, the offeror of such printed forms was helpless against the massive
organizations like those above. These organizations have availed of the opportunity to exploit the
weak individual by imposing onerous terms upon them. Therefore, nowadays, to protect the
oppressed individual, the courts have evolved various modes of protection.

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 Acceptance: When the person to whom the offer is made signifies his assent thereto, the offer is
said to be accepted. An offer can be accepted only by the person or persons for whom the offer is
intended. An offer made to a particular person can only be accepted by him because he is the only
person intended to accept. An offer made to a class of persons can be accepted by any member of
that class. An offer made to the world at large can be accepted by any person whatsoever. ‘X’ sold
his business to ‘Y’ without disclosing the fact to his customers. ‘Z’ sent an order for goods to ‘X’
by name. ‘Y’ received it and sent a letter of acceptance. Held, there was no contract between ‘Y’
and ‘Z’ because ‘Z’ never made any offer to ‘Y’.

 Rules regarding acceptance: The acceptance of an offer to be legally effective must satisfy the
following requirements:
1. It must be an absolute and unqualified acceptance of all the terms of the offer: If there is any
variation, even on an unimportant point, between the terms of the offer and the terms of the
acceptance, there is no contract.
Example: ‘M’ offered land to ‘N’ at TK. 280000. ‘N’ replied, accepting and enclosing TK 80000,
and promising to pay the balance by monthly installments of TK 50000. Held, there was no
contract, as there was no unqualified acceptance.
2. Conditional Acceptance: In accordance with English law as well as with the terms of the Contract
Act, an acceptance with a variation is no acceptance; it is simply a counter-proposal, which must
be accepted by the original promisor before a contract is made.
Example: ‘X’ offered to sell his house for TK. 120000. ‘Y’ said, "Accepted for TK. 100000." This
is not an acceptance but a counter offer or counter proposal. But an acceptance is not called
'conditional' if an immaterial term is added or if there occurs any misunderstanding between the
parties regarding the interpretation of collateral terms.
3. The acceptance must be expressed in some usual or reasonable manner: The offeree may
express his acceptance by word of mouth, telephone, telegram, or post. These are the usual methods
of communicating acceptance to the offeror. An offer may also be accepted by conduct. If the
offeree does what the offeror wants him to do, there is acceptance of the offer by conduct. Section
8 of the Act states that "Performance of the conditions of a proposal or the acceptance of any
consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of
the proposal."
Example of acceptance by oral or writing: ‘P’ offers to buy ‘Q's bicycle at TK. 500. ‘Q’ may
accept this offer by stating so orally or through telephone, by writing a letter, or by sending a
telegram to that effect.
Example of acceptance by conduct: A company offered TK. 10000 to anyone who contracted
influenza after using their smoke ball 3 times daily for 2 weeks. Mrs. Carlil used the smoke ball
but got influenza. She claimed the reward. The company objected that she should have notified
them of her acceptance of the offer. Held, the use of the smoke ball by Mrs. Carlil constituted
acceptance of the offer by conduct, and no formal notice of acceptance was necessary.
4. Mental acceptance or uncommunicated assent does not result in a contract: No contract is
formed if the offeree remains silent and does nothing to show that he has accepted the offer.
Acceptance must be communicated to the offeror or shown by conduct. Acceptance cannot be
implied from the silence of the offeree.

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5. The mode of acceptance: Where the promisor prescribes a particular mode of acceptance, the
offeree must follow the particular mode of acceptance.
For example, if the offeror says, "acceptance to be sent by telegram", the offeree must send a
telegram. If the offeree fails to follow the prescribed mode of acceptance, the proposer may, within
a reasonable time after the acceptance is communicated to him, insist that the proposal be accepted
in the prescribed manner and not otherwise. But if the proposer does not insist upon it, he accepts
the acceptance as actually communicated. Thus, under Indian law, the proposer has the option of
waiving compliance with the prescribed mode of acceptance.
Example: ‘X’ offers to buy a certain quantity of coal from ‘Y’ at a certain price and asks ‘Y’ to
send a telegram if he accepts, and ‘Y’ writes a letter accepting the offer. ‘X’ may insist on a
telegram from ‘Y’, but if ‘X’ does not so insist, the acceptance is good.
6. Time of Acceptance: If the offeror prescribes a time, the acceptance must be made within that
time. If no time is prescribed, the acceptance must be done within a reasonable time. What is
'reasonable' depends on the facts of the case.
7. When acceptance is complete: Section 4 of the Contract Act lays down that the communication
of an acceptance is complete, as against the proposer when it is put in a course of transmission to
him,' to be out of the power of the acceptor; and as against the acceptor when it comes to the
knowledge of the proposer. Some examples are-
 ‘A’ proposes, by letter, to sell a house to ‘B’ at a certain price. The communication of the proposal
is complete when ‘B’ receives the letter.
 ‘B’ accepts ‘A's proposal by a letter sent by post. The communication of the acceptance is complete
against ‘A’ when the letter is posted, as against ‘B’ when the letter is received by ‘A’.
8. Before Offer: There cannot be acceptance before the offer is made by any person. The acceptance
must be made while the offer is in force, before the offer has been revoked or the offer has lapsed.

 Consideration: Consideration is an essential element in a contract. Subject to certain exceptions,

an agreement is not enforceable unless each party to the agreement gets something. This
"something" is called consideration.
 In the English case, Currie v. Misa, consideration was defined as, 'some right, interest, profit or
benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered
or undertaken by the other."
 Section 2(d) of the Contract Act defines, consideration as follows: "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 to abstain from, doing, something, such act or abstinence or
promise is called a consideration for the promise."

Example: ‘P’ agrees to sell a house to ‘Q’ for Tk. 80000. For ‘P’s promise, the consideration is
Tk. 80000, For ‘Q's promise, the consideration is the house.

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 Types of Consideration: Consideration may be classified into three types, as follows:

1. Past consideration: When the consideration of one party was given before the date of the promise,
it is said to be past.
Example: Suppose that ‘X’ does some work for ‘Y’ in January (without expecting any payment).
In February, Y promises to pay him some money. The consideration of ‘X’ is past consideration.
2. Present consideration: Consideration that moves simultaneously with the promise is called
present consideration or executed consideration.
Example: ‘B’ buys an article from a shop and pays the price immediately. The consideration
moving from ‘B’ is a present or executed consideration.
3. Future consideration: When the consideration is to move at a future date, it is called Future
consideration or executory consideration. In a contract, the consideration may be executory on both
sides. A promise may support a promise. Thus, a promise to pay money at a future date for goods
to be delivered at a future date is a valid contract.

 Rules Regarding Consideration: The following rules may be laid down regarding consideration:
1. Desire (or request) of the promisor is essential: The act done or loss suffered by the promisee
must have been done or suffered at the desire of the promisor. An act done without any request is
a voluntary act and does not come within the definition of consideration.
Example: ‘P’ sees ‘Q’'s house on fire and helps in extinguishing it. ‘Q’ did not ask for his help.
‘P’ cannot demand payment for his services.
2. The consideration must be real: The consideration must have some value in the eye of the law.
It must not be a sham or illusory. The impossible acts and illusory or non-existing goods cannot
support a contract. Therefore, real consideration comes from good consideration. A contribution
to charity is without consideration. Therefore, it is not a real consideration.
3. Public duty: "Where the promise is already under an existing public duty, an express promise to
perform, or performance of, that duty will not amount to consideration. There will be no detriment
to the promisee or benefit to the promisor over and above their existing rights and liabilities".
4. Consideration need not be adequate: Section 25 (explanation '2) provides that, "An agreement
to which the consent of the party is freely given is not void merely because the consideration is
inadequate, but the inadequacy of the consideration may be taken into account by the court in
determining the question 'whether the consent of the promisor was freely given”. The reason behind
this rule is that it is impossible for the court to decide what adequate consideration is. The parties
to the contract must decide the quantum of consideration and, if consent is freely given, the court
will enforce the agreement. If the consideration is inadequate, the Court may hold that consent of
the promisor was not freely given, and the agreement may become void.
5. The consideration must not be illegal, immoral, or opposed to public policy: If either the
consideration of the object of the agreement is illegal, the agreement cannot be enforced. The same
principle applies if the consideration is immoral or opposed to public policy.
6. The consideration may be present, past, or future: A consideration may be present, past, or
future in terms of condition. A promisor can promise to the promisee what has been done or
abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing
something.

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7. Consideration may move from the promisee or from any other person: A person granted some
properties to his wife ‘C’, directing her at the same time to pay an annual allowance to his brother
‘R’. ‘C’ also entered into an agreement with ‘R’ promising to pay the allowance to ‘R’. This
agreement can be enforced by ‘R’ even though no part of the consideration received by ‘C’ moved
from ‘R’. A stranger to the consideration can sue to enforce the contract, though a stranger to the
contract cannot. In England, a stranger to the consideration cannot sue on the contract.

 “No Consideration No Contract” Exemptions to the Rule: Consideration is essential for the
validity of a contract. There are exceptional cases where a contract is enforceable even though
there is no consideration. They are as follows:
1. Natural love and affection: An agreement made without consideration is valid if it is expressed
in writing and registered under the law for the time being in force for the registration of documents,
and is made on account of natural love and affection between parties standing in a near relation to
each other."-Sec 25(i).
Example: ‘A’ for natural love and affection, promises to give his son ‘B’ Tk. 100000. ‘A’ puts his
promise to ‘B’ in writing and registers it. This is a contract.
2. Voluntary Compensation: A promise made without any consideration is valid if "it is a promise
to compensate wholly or in part, a person who has already voluntarily done something for the
promisor, or something which the promisor was legally compellable to do:'-Sec. 25(2).
Section 25(2) applies when there is a "Voluntary act by one party and there is a subsequent promise
(by the party benefited) to pay compensation to the former. The term 'voluntarily' signifies that the
act was done, otherwise than at the desire of the promisor".
Example: ‘D’ finds ‘B's purse and gives it to him. ‘B’ promises to give ‘D’ Tk. 500. This is a
contract.
3. Time-barred debt: A promise to pay, wholly or in part, a debt that is barred by the law of
limitation can be enforced if the promise is in writing and is signed by the debtor or his authorized
agent. - Sec. 25(3). A debt barred by limitation cannot be recovered. Therefore, a promise to repay
such a debt is, strictly speaking, without any consideration. But nevertheless, such a promise can
be enforced if the debtor or his authorized agent makes a written and signed promise to repay it.
The debt must be a liquidated or ascertained sum of money and a definite promise to pay. A mere
acknowledgment of the debt is not enough.
4. Agency: No consideration is required to create an agency -Sec. 185.
5. Guarantee: A contract of guarantee is made without consideration.
6. Charity or Donation: A promisor of a charity or donation is not liable to keep his promise and
cannot be enforced to do so. But if the promisee, on the strength of the promise, makes a
commitment that can result in loss to the promisee if the promisor does not fulfill this promise, the
promisee can lawfully claim such damage.
7. Completed gift: The rule "no consideration, no contract" does not apply to completed gifts.
Explanation 1, to Section 25 states that, "Nothing in this section shall affect the validity as between
the donor and the donee, of any gift actually made”. Thus, if a person gives certain properties to
another according to the provisions of the Transfer of Property Act (by a written and registered
document), he cannot subsequently demand the property back on the ground that there was no
consideration

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 Methods of Termination or Discharge of Contracts: When the obligation created by a contract

comes to an end, the contract is said to be discharged or terminated. A contract may be discharged
or terminated in any of the following ways:
1. Termination by Performance: A party's obligations to a contract end when he performs his
promise. Performance by all the parties of the respective obligations completely ends the contract.
This is the normal and natural mode of discharging a contract. The offer of performance or tender
has the same effect as performance. If a party to a contract offers to perform its promise but the
offer is not accepted by the other party, the obligations of the first party are terminated.
2. Termination by Mutual Agreement: By agreement of all parties, a contract may be canceled or
its terms altered, or a new agreement substituted for it. Whenever any of these things happen, the
old contract is terminated. "If the parties to a contract agree to substitute a new contract for it, or
to rescind or alter it, the original contract need not be performed."-Sec. 62. Termination by mutual
agreement may occur in any of the following ways:

 Novation
 Alteration
 Remission
 Accord and Satisfaction
 Rescission
 Suit for Rescission
 Waiver
 Merger

3. Subsequent or Supervening Impossibility: A contract "which at the time it was entered into was
impossible to perform is void at the outset and creates no rights and obligations, a promise to ride
a horse to the sun. A contract, which was capable of being performed at the time it was entered,
may subsequently become impossible to perform or unlawful. In such cases, the contract becomes
void. This is known as the doctrine of Supervening Impossibility. It is also known as the Doctrine
of Frustration. "A contract to do an act which, after the contract is made, becomes impossible, or,
because of some event which the promisor could not prevent, unlawful, becomes void when the
act becomes impossible or unlawful."-Sec. 56. Grounds of Frustration, Supervening impossibility
may occur in many ways, some of which are given below:

 Destruction of an object.
 Change of law.
 Failure of Pre-conditions.
 Death or Incapacity for personal services.
 Outbreak of War.

4. Termination by Operation of Law: A contract terminates by operation of law in case of death,

insolvency, or merger.
 Death: In contracts involving personal skill or ability, death terminates the contract. In other cases,
the rights and liabilities pass on to the legal representatives of the dead man.

SHOAIB ISLAM, ASSISTANT PROFESSOR, DEPARTMENT OF HUMANITIES, RUET 10

 PROJECT MANAGEMENT AND LEGAL ISSUES (HUM - 4215)

 Insolvency: Upon insolvency, the rights and liabilities of the insolvent are, with certain exceptions,
transferred to an officer of the court, known as the Official Assignee in Calcutta and other
presidency towns and as the Official Receiver in other areas.
 Merger: When a superior right and an inferior right coincide and meet in the same person, the
inferior right vanishes into the superior right. This is known as a merger.
5. Lapse of Time: Contracts may be terminated by lapse of time. In civil suits, contract obligations
and liabilities are barred by limitation. The provisions of the law are stated in the Limitation Acts.
6. Termination by Material Alteration: If the document containing the terms of a contract is
materially altered by a party to the contract, without the consent of the other parties, the contract
is discharged and cannot be enforced anymore. The term 'material alteration' means a change that
affects or alters, in a significant manner, the rights and liabilities of the parties.

Example: A change in the amount of money to be paid; the time of payment; the place of payment;
the names of the parties, etc.

These changes involve tampering with the document wherein the terms of the contract have been
written down. A document that has been tampered with in such a way is not admissible in evidence,
and the contract recorded there naturally becomes unenforceable. If an alteration (by erasure,
interlineation, or otherwise) is made in a material part of a deed, after its execution, without the
consent of the party or parties liable under it, the deed is rendered void from the time of the
alteration.
7. Termination by Breach of Contract: When a contract is broken by one party, the other party or
parties are freed from the obligation of performing the contract. They can also take the remedial
measures to which they are entitled. Breach of contract may arise in two ways:

 Anticipatory Breach of Contract: Anticipatory breach of contract occurs when a party repudiates
his liability under the contract before the time for performance is due or when a party, by his own
act, disables himself from performing the contract.

Example: ‘X’ agrees to marry ‘Y’. Before the agreed date of marriage, he marries ‘Z’.

 Actual Breach of Contract: Actual breach of contract occurs during the performance of the
contract or at the time when the performance of the contract is due; one party either fails or refuses
to perform their obligations under the contract.

 Example: ‘D’ agrees to deliver to ‘B’, 5 tons of sugar on 1st June. He fails to do so on 1st June.
There is a breach of contract by ‘D’.

SHOAIB ISLAM, ASSISTANT PROFESSOR, DEPARTMENT OF HUMANITIES, RUET 11