Understanding Contracts: Types, Discharge, and Legal Aspects

Posted on Jun 26, 2024 in Law & Jurisprudence

What is a Contract?

The whole law revolves around the key word — “contract”, which is defined as follows:

Definition : Section 12 H

“An agreement enforceable by law is a contract.” This definition is further elaborated by legal experts:

(1) Sir William Anson
‘Contract’ means a legally enforceable agreement between two or more persons wherein they acquire legal rights and corresponding legal responsibilities.

(2) Sir Fredrick Pollock
An agreement which can be enforced in a Court of Law is a contract.

(3) Salmond
An agreement that defines the obligations between two or more persons is known as a contract.

Comparing these definitions with the Indian Contract Act, 1872, a clear meaning emerges: when an agreement between two persons is enforceable in a court of law, it is considered a contract. This can be represented by the following formula:

The term agreement is defined in Section 2 (e) as:
“Every promise and every set of promises, forming the consideration for each other, is an agreement”

In essence, an agreement is a consent to perform an act or refrain from doing something for valid consideration. However, such a contract needs to comply with the principles of the Indian Contract Act. Section 10 of the Indian Contract Act, 1872, outlines the fundamentals of a contract:

(1) Legally enforceable proposal and acceptance;
(2) Contractual relationship;
(3) Capacity to contract/competent parties;
(4) Free consent;
(5) Consideration;
(6) Valid and legally enforceable contract, not prohibited by any other law;
(7) Formalities.

Discharge of Contract

When two persons enter into a contract, certain rights and responsibilities are created. The cessation of these rights and responsibilities signifies the discharge of a contract. Discharge of contract can occur through the following methods:

(1) Discharge by performance.
(2) Modification in the contract with the consent of the parties involved.
(3) Performance of the contract becomes impossible.
(4) Discharge by change in the existing law.
(5) Completion of the contract period.
(6) Breach of contract.

Explanations:

(1) Discharge by performance – When all parties fulfill their obligations as per the contract, it is mutually beneficial and signifies a successful transaction.

(2) Alterations in the contract with consent – When parties mutually agree to modify the terms of the contract, it reflects their continued acceptance and capacity to complete the contract.

(3) Discharge due to impossibility – A contract should only contain achievable conditions. If unforeseen circumstances make performance impossible, the contract can be discharged.

(4) Discharge due to changes in existing law – If a change in law makes the contract illegal or unenforceable, it can be discharged.

(5) Discharge due to completion of tenure – When a contract reaches its agreed-upon end date, it is discharged.

(6) Discharge due to breach of contract – If a party fails to fulfill their contractual obligations without a valid reason or agreed extension, it constitutes a breach, potentially leading to discharge.

Types of Crossing

Following are the two types of crossing:

(1) General crossing
(2) Special crossing

(1) General Crossing (Sec. 123)

When two slanting parallel lines are drawn on the face of a cheque, it is considered a general crossing. Words like “& Co.”, “Not negotiable”, or “A/c Payee only” may be written between the lines, but they are not mandatory.

Specimen of General Crossing

(2) Special Crossing (Section 124)

When two parallel slanting lines are drawn on the face of the instrument and the name of a specific bank is written between them, it is a special crossing. Words like “& Co.”, “Not negotiable”, and “A/c payee only” may also be present.

Specimen of Special Crossing

Features of a Promissory Note

(1) Must be in writing.
(2) Must contain an unconditional promise to pay a specific sum. A mere acknowledgment of debt is not a promissory note.
(3) The promise to pay must be unconditional. Any conditionality makes it invalid as a promissory note.
(4) Must be signed by the maker.
(5) Must specify a certain amount to be paid.
(6) Should be payable to a specific person, their order, or the bearer.
(7) Must be stamped according to the Indian Stamps Act.

Diagram 3.1: Specimen of Promissory Note

Difference Between Sale and Agreement to Sell

Types of Delivery of Goods

Goods may be delivered by following four
modes:
(A) Physical delivery of goods : When the seller physically sends the goods to the buyer or his authorized representative then it is deemed that the goods have been physically delivered to the buyer.
(B) Representative Delivery : When the seller makes available to the buyer the medium or means of acquiring the goods it is said to be representative delivery of goods. E.g. ’A’ gives ’B the keys of the storehouse containing 50 bags of sugar. ’handling over to ’B’ the keys of the storehouse is representative delivery of goods.
(C) Constructive Delivery : When the
seller hands over the buyer the documents of title to the goods then I t IS said to be a constructive delivery of goods. E.g. if goods are sent to the buyer by railway and gives the possession of the railway receipt, the document entitling the buyer to take possession (delivery) of the goods then it is said to be constructive delivery.
(D) Delivery in Instalments : The normal custom is that the seller must deliver the goods to the buyer in one instalment and the buyer should pay the price to the seller in one instalment. If the seller delivers the goods in instalments, the buyer has the right to reject the goods. If the agreement contains a provision in to deliver goods in instalments and to make payment for every instalment of delivery and if any of the party fails to comply with the agreement then (a) the other party may cancel the contract altogether or (b) that instalment will be treated as a separate independent contract and damages will be claimed for breach of contract. Fulfillment of the uncompleted portion of the agreement will depend on the circumstances

***Provisions Related to Health
The Act of 1881 did not contain provisions related to health but the same were incorporated in the Act of 1948 since such need was felt. The environment and surroundings in and around the factory must be clean and airy. To ensure good health of the workers the Act contains certain provisions which are contained in sections 11 to 20. The brief provisions of sections 11 to 20 are given below:
(2) Waste and Effluents (Section 12) – In a factory various effluents in the form of waste- water, pollutants and other material are emitted. These effluents need to be disposed of properly. The State Government has enacted certain rules and these must be followed strictly.
E.g. smoke emitted by the factory must be thrown out (emitted) through a chimney of specific height. Extremely strict rules are done in the state of Maharashtra in this regard.
(3) Ventilation & Temperature {Section 13) – Special efforts must be made to ensure free and undisturbed flow of fresh air and necessary steps must be taken for the same. The temperature in the factory must not be detrimental to the health of the workers and the rules framed by the State Government. To enhance free flow of air, doors and windows face each other as far as possible. Similarly the height of the ground floor should be such that it will not raise the temperature. 
(4) Dust & Fume {Section 14) – Harmful smoke is generated in course of manufacture in a factory. The smoke also contains dust and fumes which affect the health adversely. Hence the dust, smoke and fumes must be disposed of properly. There must be a proper system that will take care of such poisonous gases.
(5) Artificial Humidification {Section 15) – Certain factories require artificial humidification e.g. cloth industry requires such artificial humidification. Where such humidity is increased artificially, special care must be taken. The water used in artificial humidification must be pure and clean. Similarly the humidity must be checked from time to time.
(6) Over Crowding {Section 16) – Proper space must be provided for the workers working in the factory. This means rooms in any factory should not be overcrowded to an extent injurious to the health of the workers employed therein. The quantum of cm wd to has been decided by the Act.

***National Tribunal
The Central Government may, by notification in the official Gazette, constitute one or more ‘National Industrial Tribunals’ for the adjudication of industrial disputes which in the opinion of the Central Government, involve questions of national importance or are of such a nature that industrial establishments situated in more than one state are likely to be interested in, or affected by, such disputes.
A National Tribunal shall consist of one person only to be appointed by the central Government. For the appointment of such a person. So for as qualification is concerned, he must be or must have been a judge of a High Court or he must have held the office of the chairman or any other member of Labour Appellate Tribunal or a person qualified to be appointed as a District judge or as a High Court judge.
The Central Government may appoint two persons as assessors to advise the National Tribunal in the proceedings before it.
A person is disqualified to be appointed as National Tribunal if such person has attained the age of 65 years on Labour Court, a Industrial Tribunal or National Tribunal; or if he is not or independent person.
In case of any vacancy of the Presiding officer of Labour Court or Tribunals then the appropriate Government has to appoint another person according to the Act to fill the vacancy and the proceeding may be continued before such Labour Court or Tribunals as the case may be from the state at which the vacancy is filled.

***Rights of the Consumers
In England and America, since 1960 there is considerable awareness amongst the consumers. As they were united, Government had to make many legislations to protect their rights. In the year 1962, John Kenedy, the Presidient of America declared the following rights of the consumers.
(1) Right to protect health of the Consumers : lt means the manufacturers should not produce the goods which are hazardous to the health of the consumers. Colours and chemicals which are harmful to the consumers should not be used in the manufacturing of goods.(2)   Right to information : It is necessary    to    have    complete information to the consumer about the product while purchasing for example method of u sing the example method of u sing the product. (3) Right to Choice : Variety of goods should be available in the market from which the consumer would get choice to purchase the goods as per his requirement. (4) Right to complaint : Consumer should have right to lodge complaint and there should be proper machinery to take cognizance of such complaint and deliver justice to the consumer. Who is not satisfied with the purchased goods. (5) Right to healthy environment : Manufacturers should take care that their manufacturing is not making water, air, sound, etc.

***Authorised Deductions from Wages
Prior to passing of the Payment of Wages Act, so many deductions used to take place from the wages. In those days, the amount of wages used to be very low and even then employers were making deductions from workers wages under one on the other reasons. Hence, very small amount is to be these in the hands of workers. Most of these deductions used to be unauthorised. As these deductions were large in number, workers exploitation was rampant. Such illegal and unreasonable instances shouldn’t be repeated and hence certain provisions are made in this Act. Section 6 talks about the limit of maximum amount of deductions and it further states the list of the authorised deductions. As per this section employer should take into consideration the following provisions while making payment of wages and deductions from the same. • If a particular employed person does not belong to any co-operative society in such a case his total deductions shall not exceed 50% of the wages.

***Void Agreements
Certain agreements are declared void by the 1ndian Contract Act because while conceiting the agreement into contracts some lacunas have been found.
An agreement that cannot be legally
enforced ÎS il Void agreement.
The law makers have envisaged certain lacunes in such kind of contract. Hence a list of void agreement is given which is as under:
(01) a contract with a person incompetent to contract (Section ll)
(02) mistake as to subject matter by both the parties (Section 20/2?)
(03) agreements for illegal consideration
(Section 24)
(04) agreement without consideration
(05) agreement for illegal object (Section J3)
(06) agreement in restraint of marriage (Section 26)
07) agreement in restraint of trade (Section 27)
(08) agreements in restrain of legal proceedings (Section 28)
(09) agreements void for uncertainty
(Section 29)
( 10) wagering contract/ agreement
(Section  30)
( 11) contracts contingent on happening of an event (Section  J2J
( 1 2) agreement to   do   impossible
oct (Section  56)
( 13) agreement based on future event becoming impossible (Section 56)
(14) agreement against social policy
(Section  57 j

***Powers of inspectors : The ambit of powers of every inspector is defined. This ambit may defined on the geographical base or on the basis of industry. The factory inspector has the following rights in respect of factories falling under his jurisdiction.
(1) To enter into  the premises  of factories, whether belonging to the government, semi-government
(2) To inspect the factory premises,
machinery and various factory records;
(3) To take and record statements of any
of the employees of a factory;
(4) To use all other powers to enforce compliance of the Act.
The inspector cannot pressurise / compel the employees while taking any information from them.   If   any    obstacle    or   detriment is created while the inspector carries on his duties it will be a sever offence and the person so causing the detriment shall and pursuant to section 95 of the Act such a person may be prosecuted by way of punishment of 6 months and a fine which may extend to Rs. 500/-.

***Annual Leave (Section 79)
If a worker has worked for a period of 240 days during one year, then he is entitled to paid leave. The rules to this effect are:
(a) if an adult, one day for every twenty days of work performed by him during the previous calendar year.
(b) if a child, one day for every fifteen days of work formed by him during the previous calendar year.
(a) any days of lay off, by agreement or contract or as permissible under the standing orders;
(b) in the case of a female worker, maternity leave for any number of days not exceeding twelve weeks; and
(c) the leave earned in the year prior to that in which the leave is enjoyed; shall be deemed to be days on which the worker has worked in a factory for the purpose of computation of the period of 240 days or more, but he shall not earn leave for these days.