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Discharge of Contract

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DISCHARGE OF CONTRACT

Discharge of a contract means parties to the contract are no more liable to the contract.

Liabilities of the parties to the contract will come to an end.

Ways of discharge of contract-When the rights & obligations arising out

of a contract are extinguished , the contract is said to be discharged or terminated.

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DISCHARGE OF CONTRACTA contract may be discharged by any of the

following ways:-By performance- actual or attempted( or

tender)By mutual consent or agreementBy Impossibility of performance; inherent

impossibility , subsequent or supervening impossibility

or illegality By lapse of time

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DISCHARGE OF CONTRACT

A contract may be discharged by any of the following ways:-

By lapse of timeBy operation of lawBy breach of contract

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DISCHARGE OF CONTRACT

By performance- actual or attempted( or tender)

By performance means where the parties have done whatever was contemplated under the contract & contract comes to an end

Tender or offer of performance has the same effect as performance.

If a promisor tenders performance of his promise but the other party refuses to accept , promisor stands discharged of his obligations

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DISCHARGE OF CONTRACT

By performance- actual or attempted( or tender)

EX : A contracts to sell his car to B for Rs 2 lakhs, as soon as the car is delivered to B & B pays the agreed price to A , the contract comes to an end by performance.

By performance means where the parties have done whatever was contemplated under the contract & contract comes to an end

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DISCHARGE OF CONTRACT

Meaning of mutual consent A contract may terminate by mutual consent by any of the

following six ways:- Novation : substitution of new contract for the original contract( original contract stands discharged) Rescission : It means cancellation of all or some of the terms

of a contract . Where parties mutually decide to cancel all or some of the terms of the contract.

When a breach of contract is committed by one party , the other party may treat the contract as rescinded. In such a case the aggrieved party is freed from all such obligations under the contract

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DISCHARGE OF CONTRACT

Alteration : Remission : It is acceptance of lesser sum than what was

contracted for or a lesser fulfillment of the promise made.EX:A owes B Rs5,000/= . A pays Rs 2,000/= to B in

satisfaction of whole debt. & B accepts it . Whole debt / contract is discharged.

Waiver : means relinquishment or abandonment of a right Merger : A contract is said to be discharged by merger where

an inferior right possessed by a person coincides with a superior right of the same person

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DISCHARGE OF CONTRACT

Waiver : means relinquishment or abandonment of a right: When a party waives his right under the contract, the other party is relieved of his obligations.

Ex: A promises to paint a picture for B . B afterwards forbids him to do so . A is no longer bound to perform the promise

Merger : A contract is said to be discharged by merger where an inferior right possessed by a person coincides with a superior right of the same person

Ex; A , who is holding certain property under a lease , buys it . His right as a lessee vanish ; they are merged into

the right of ownership which he has now acquired.

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DISCHARGE OF CONTRACT

A contract may be discharged - By Impossibility of performance

Sec 56 para 1 of contract Act provides that ‘ An agreement to do an act impossible in itself is void’

There is no question of discharge of a contract which is entered into to perform something that is obliviously impossible .

E.g. an agreement to discover treasure by magic. This agreement is void ab initio by virtue of sec 56 para 1.

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DISCHARGE OF CONTRACTSubsequent impossibility Sec 56 para 2 provides that a contract to do an act which, after the

contract is made , becomes impossible , or by reasons of some events which the promisor

could not prevent, unlawful , becomes void when the act becomes impossible or unlawful. The following conditions must be fulfilled:- That the act should have become impossible. That the impossibility should have been by reasons of some

event which promisor could not prevent & That the possibility should not have been self inducted by the

promisor or due to his negligence

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DISCHARGE OF CONTRACT Circumstances of supervening or Subsequent

impossibility A contract is deemed to have become impossible of

performance & thus void under following circumstances:- Destruction of the subject matter of the contract: Where the subject matter of a contract is destroyed for no fault of the

promisor , the contract becomes void by impossibility of performance. Ex: A music hall was agreed to be let out on certain dates, but before

these dates it was destroyed by fire the owner was absolved from liability to let the building as promised.

By the death or disablement of the parties : Where the performance of the contract must be executed personally by

the promisor, his death or physical disability to perform shall render the contract void & thus exonerate him from the obligation.

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DISCHARGE OF CONTRACT Circumstances of supervening or Subsequent

impossibility EX : A river changes its course & part of land which was

earlier in India now become part of Bangladesh. Ex: A painter contract to make a painting of Mr AX . He takes advance of

Rs 10,000/= for this work & balance Rs 90,000/= after the work is done He dies before making painting .

EX: A singer agrees to give performance, gets pain in his throat on the day of performance.

EX: X borrowed Rs 5 lakhs from Y to be repaid on 17 Jan 2014. X dies on 16 Jan 2014. X’s legal representative shall be liable to pay the amount . Of course the legal representative’s liability is limited to the extent of the value of the assets inherited by him.

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DISCHARGE OF CONTRACT Circumstances of supervening or Subsequent

impossibility Declaration of war : If a war is declared between two countries

subsequent to the making of a contract. the parties would be exonerated from its performance.

EX:

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DISCHARGE OF CONTRACT

Doctrine of supervening impossibility An act which could not have been in the contemplation of

parties when the contract was made , renders performance impossible or unlawful, the contract becomes void & thus stands discharged .

This is known as frustration of contract brought out by supervening impossibility

It is also known as Doctrine of supervening impossibility Examples: Destruction of subject matter-without the fault of promisor or promisee,

the contract is discharged . It is only when property & goods destroyed can not be regained .

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DISCHARGE OF CONTRACT

Examples: Failure of ultimate purpose. Common wealth games

cancelled Death or personal incapacity of promisor: when performance of a contract depends upon personal skill

or qualification or existence of a given person , the contract is discharged on the illness or incapacity or death of that person.

Change of Law: A subsequent change of law may render the contract illegal

& in such cases the contract is deemed discharged.

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DISCHARGE OF CONTRACT

Cases not covered under supervening impossibility General rule of law of contract: “ He who agrees to do an act must do it or pay damages for

not doing it”1. The mere fact that the performance is more difficult or

expensive or less profitable than the parties anticipated , does not discharge the contract.

2. Commercial impossibility- profit comes to a very low level EX: A contract to lay gas pipelines is not discharged because

the out break of war makes it expensive to procure the necessary materials.

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DISCHARGE OF CONTRACT

3. The promisor is not exonerated from his liability if the third person on whose work the promisor relied ,fails to perform 4. Strikes , Lock outs and civil disturbances.: Events like these are not the cause of to terminate the contracts unless there is clause in the contract to that effect. 5. Failure of one of the objects: When a contract is entered into for several objects , the failure of one of

them does not discharge the contract. EX: A agreed to let a boat to H to (a) view the naval review at the

coronation and (b) to cruise around fleet. Owing to the king’s illeness the naval review was cancelled but the fleet was assembled and the boat could have been used to cruise round the fleet. Held that contract was not discharged.

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DISCHARGE OF CONTRACT As seen from our discussion that impossibility means ‘legal impossibility’

& does not cover commercial impossibility . Thus a strike may create a difficult situation, but it does not amount to

impossibility’ in a legal sense. It is a case of mere commercial impossibility , which if the parties desire ,

may specifically provide for in the contract. Such a provision is contained what is known as ‘Force majure

clause’ Force majure clause: The effect of such a clause is to totally dispense with

the performance of all obligations arising otherwise than under a contract.

A contract may be discharged By lapse of time As per limitation act , legal action required to be initiated well within

specified period, otherwise the promisee is debarred from filling a suit in a court of law & the contract stands cancelled

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DISCHARGE OF CONTRACT

A contract may be discharged by operation of law in the following cases:

Death of promisor if contract is of personal nature. In other contracts the rights & liabilities of deceased person pass on to

the legal representative s of the dead man Insolvency: A contract is discharged by insolvency of one of the parties to

the contract. Merger: Where an inferior right contract merges into the superior

right contract , the former stands discharged automatically.

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DISCHARGE OF CONTRACTA contract may be discharged by operation of

law in the following cases: Unauthorized material alteration made in a written document

or contract by one party without the consent of the other , will make the whole contract void .

A contract may be discharged by breach of contract Breach brings an end to the obligations created by a contract on the part of each of the parties, Aggrieved party i.e. the party not at fault can sue for damages

for breach of contract

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DISCHARGE OF CONTRACT Breach of contract may be of two types:- Anticipatory breach:- Breach of contract occurring before

the time fixed for performance has arrived or when the party by his own act disables himself from performing the contract.

It may take place in two ways:-1. Expressly by words spoken or written, party to the contract communicates to the other party.2. Implied by conduct of one of the parties:-Refused to perform or disabled himself from performing. Ex: A contracts to supply B certain articles on Ist August, on

20th july he informs B that he will not be able to supply the goods. B is entitled to sue A for breach of promise.

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DISCHARGE OF CONTRACT Anticipatory breach is also known as ‘breach of repudiation’ Repudiation is a clear statement by one party before promise

is due that it can not or will not perform a material part of the contract obligation.

Ex: You promised to sell your car to a friend, A day before the date of delivery you sent message to friend that you have decided to sell car to ‘A’ This would be Repudiation or Anticipatory breach.

It would also be repudiation if your friend heard from another reliable source that you have sold the car to some one else.

However , it is not repudiation if one party will not perform because of an honest disagreement over the contract’s terms breach of promise.

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DISCHARGE OF CONTRACT Consequences of Anticipatory breach Where a party to a contract refuses to performm his part of

the contract before the actual time arrives, the promisee may either:-

Rescind the contract & treat the contract as at an end & at once sue for damages or

He may elect not to rescind but to treat the contract operative and wait for the time of performance & then hold the other party liable for the consequence of non performance.

In the later case, the party who has repudiated the contract may still perform if he can

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DISCHARGE OF CONTRACT Consequences of Anticipatory breach The anticipatory breach by itself does not discharge a contract . The contract is discharged when the aggrieved party accepts the

repudiation of a contract i.e. elects to rescind the contract. If the repudiation is not accepted and subsequent an event

happens discharging the contract legally , the aggrieved party shall loose the right to sue for damages

Ex: Anthony agreed to load a cargo wheat on Joseph’s ship by a particular date but when the ship arrived , Anthony refused to load the cargo.

Joseph did not accept the refusal and continued to demand loading of cargo. Before the last date of loading had expired war broke out rendering the performance of contract illegal

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DISCHARGE OF CONTRACT Consequences of Anticipatory breach Joseph did not accept the refusal and continued to demand

loading of cargo. Before the last date of loading had expired war broke out rendering the performance of contract illegal

Held , the contract was discharged and Joseph could not sue for damages.

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DISCHARGE OF CONTRACT Breach during the performance of the contract The actual Breach of the contract also occurs when during

the performance of contract, one party fails or refuses to perform his obligation under the contract.

Ex: A contracted with a Railway Company to supply it certain quantity of railway chairs at a certain price. The delivery was to be made in installments. After a few installments had been made, the Railway company asked A to deliver no more.

Held A could sue for breach of contract.

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DISCHARGE OF CONTRACT How is a contract breached by making performance

impossible: Suppose you hire an Agency for cleaning carpets in your

home on Saturday for Rs5,000/=. You go out locking your house. You have breached the

contract by making performance impossible. Partial breach of Contract: This happens when a non

material ( unimportant) part of contract gets breached. It may happen when the contract has several divisible parts

each of which you may treat as a separate contract. Then also ,you may sue even though breach is not complete. EX; Agreeing to perform a duty once in three months for one

year& then not performing for last three months of the year.

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REMEDIES FOR BREACHOF CONTRACT

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REMEDIES FOR BREACH OF CONTRACT When there is breach of contract , injured party becomes

entitled to any one or more of the following remedies against the guilty party.

Remedies of Breach of contract .1. Rescission of the contract. Other party need not perform his

part of contract & may also sue guilty party2. Suit for damages: Damages are mandatory compensation allowed to the injured party for

the loss suffered by him as a result of breach of contract. Damages may be of four kinds:-1 Ordinary or general or compensatory damages –Fairly & reasonable

damages arising naturally & directly in the usual course of things from the breach of contract. Restricted to direct or proximate consequences;

Excluding remote or indirect losses

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REMEDIES FOR BREACH OF CONTRACT Damages may be of four kinds:-1 Ordinary or general or compensatory damages –Fairly &

reasonable damages arising naturally & directly in the usual course of things from the breach of contract. Restricted to direct or proximate consequences;

Excluding remote or indirect losses Ex: A agrees to sell to B, 5 bags of rice at Rs 500/= per bag ;

delivery to be given on 01 Feb 2011. On date of delivery price of rice is Rs 700/= per bag . A refuses to deliver rice

bags to B. B can file a suit & claim Rs 1,000/= as ordinary damages

arising directly from the breach ; being the difference between contract price & market price

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REMEDIES FOR BREACH OF CONTRACT Remedies of Breach of contract .2. Special damages –These arise on account of special or unusual

circumstances. Special damages can not be claimed as a right. Such damages must be in contemplation of the parties at the time when

the contract is entered into. Subsequent knowledge of special circumstances will not create any

special liability on the guilty party.3. Exemplary or vindictive damages: (a) Breach of contract to marry (b)

Dishonor of a cheque by banker when there are sufficient funds to credit of customer.

4. Nominal damages : Damages awarded for name sake: These are awarded to establish right to decree for breach of contract when injured party has not suffered any real damage & consist of a very small sum of money.

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REMEDIES FOR BREACH OF CONTRACT Duty to mitigate damages suffered. Liquidated damages & penalty : LD means a sum fixed in advance ,

which is a fair & genuine pre estimate of the probable loss that is likely to result from the breach.

Penalty means a sum fixed in advance , which is extravagant & unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.

Under Indian Law the court will award reasonable compensation not exceeding the LD amount or penalty stipulated.

Suit upon quantum merit : Another remedy available to injured party against guilty Party for breach of contract is to file a ‘suit upon quantum merit’ means” as much as earned or in proportion to the work done.

( i.e. claiming reasonable compensation in proportion to the work done)

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REMEDIES FOR BREACH OF CONTRACT

Suit for specific performance specific performance means actual carrying out the contract as agreed. Under certain circumstances, Aggrieved party may file a suit for specific performance. Such a suit may be filed either instead of or in addition to a suit for damages

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REMEDIES FOR BREACH OF CONTRACT

Suit for an Injunction: Injunction is an order of court restraining a person

from doing a particular act. It is a mode of securing the specific performance of

the negative terms of a contract Injunction is a preventive relief. It is particularly

appropriate in cases of anticipatory breach of contract where damages would not be an adequate relief.

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REMEDIES FOR BREACH OF CONTRACT Suit for an Injunction: Injunction is an order of court restraining a person from

doing a particular act. i.e. where a person is doing something which he promised not to do , court may , by issuing an injunction restrain him from doing , what he promised not to do Ex: A agreed to sing at B’s theatre for three months wef 01 mar

2013. Subsequently she contracted to sing at C’s theatre & refused to sing at B’s theatre.

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REMEDIES FOR BREACH OF CONTRACT Suit for an Injunction:

Ex: A agreed to sing at B ‘s theatre for three months wef 01 mar 2013. Subsequently she contracted to sing at C’s theatre & refused to sing at B’s theatre.

On a suit by B court granted injunction restraining her singing elsewhere & awarded damages to B to compensate him for loss caused by A’s refusal to sing ( but court refused to order

specific performance of her i.e. engagement to sing at plaintiff’s theatre)

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