DISCHARGE OF CONTRACTMeans- termination of the contractual relationships between the parties.
A contract Is said to be discharged when ceases to operate.
The various modes of Discharge of contract
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By impossibility of performance
Novation (sec 62)
Novation takes place when (1)a new contract is substituted for an existing one between the same parties
(2)a contract between 2 parties is rescinded in consideration of a new contract being entered into on the same terms between one of the parties and a third party .
E.g.. where a creditor at the request of a debtor agrees to take another person as his debtor in place of the original debtor
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Rescission
–may occur when all or some of the terms of the contract are cancelled. it may occur-
(1)by mutual consent of the parties
(2)where one party fails in the performance of his obligation
Ex.-A promises to supply certain goods to B six months after date. by that time goods go out of fashion .A and B may rescind the contract
-A induces B to enter into a contract by fraud .in this case the contract is void able at the option of B. he may rescind the contract
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ALTERATION
Takes place when one or more of the terms of the contract is/are altered by the mutual consent of the parties to the contract. in such a case the old contract is discharged.
E.g.. A enters into a contract with B for the supply of 100 bales of cotton at his godown NO.1by the first of the next month. A and B may alter the terms of the contract by mutual consent
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Remission
It means acceptance of a lesser fulfillment of the promise made. e.g. acceptance of a lesser sum than what was contracted for, in discharge of the whole of the debt. It is not necessary that there must be some consideration for the remission of the part of the debt
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Waiver
Waiver takes place when the parties to a contract agree that they shall no longer be bound by the contract .
Merger –takes place when an inferior right accruing to a party under contract merges into a superior right accruing to the same party under the same or some other contract
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DISCHARGE BY OPERATION OF LAW
INSOLVENCY-when a person is adjudged insolvent ,he is discharged from all liabilities incurred prior to his adjudication
MERGER
ALTERATION-where one party makes any alteration into the contract without the consent of other party the ,other party can avoid the contract
DEATH-in contracts involving personal skill or ability ,the contract is terminated on death of the promisor. in other contracts ,the rights and abilities o a deceased person pass on to the legal representatives of the deceased person
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DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE
If an agreement contains an undertaking to perform an impossibility ,it is void ab initio. this rule is based on the following maxims:
1)law does not recognizes what is impossible
2)What is impossible does not create an obligation
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U/S 56 impossibility of performance may fall into either of the following categories
1.Impossibility existing at the time of agreement known as pre-contractual impossibility. the fact of impossibility may be
(i) Known to the parties
(ii) Unknown to the parties
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Impossibility which arises subsequent to the formation of a contract.
The contract becomes void when the act becomes impossible or unlawful
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Death or personal incapacity
Non –existence or non-occurring of a particular state of things
Declaration of war
E.G’S
SUBJECT MATTER- A contracted to sell a specified quantity of potatoes to be grown on his farms. the crop largely failed. held, the contract was discharged (Howell v. Coupland)
Death or personal incapacity -A contracts to act at a theatre for six months in consideration of a sum paid in advance by B .on several occasions A is too ill to act. the contract to act on those occasions is void.
Change of law -D enters into a contract with P on 1st march for the supply of certain imported goods in the month of September of the same year .in June by an act of parliament, the import of such goods is banned .the contract is discharged
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Declaration of war -A contracts to take cargo for B at a foreign port .A’s govt. afterwards declare war against the country in which the port is situated .the contract becomes void when war is declared
Non –existence or non-occurring of a particular state of things -A and B contract to marry each other .before the time fixed for the marriage A goes mad ,the contract becomes void.
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Impossibility of performance-not an excuse
In the following cases, a contract is not discharged on the ground of supervening impossibility:
1.difficulity of performance
2.commercial impossibility-a contract is not discharged merely because expectation of higher profits is not realized, or the necessary raw material is available at a higher price because of the outbreak of war ,or sudden depreciation of currency
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Strikes, lockouts and civil disturbance -unless the parties agreed in this regard at the time of formation of the contract theses events do not discharge contract.
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
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By lapse of time
The limitation act ,1963 lays down that a contract should be performed within a specified period ,called period of limitation.
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Discharge by breach of contract
Breach of contract means a breaking of obligation which a contract imposes. it occurs when a party to the contract without lawful excuse does not fulfill his contractual obligation or by his own act makes it impossible that he should perform his obligation under it.
It confers a right of action for damages on the injured party
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1.Actual breach of contract
1.Actual breach of contract
-at the time when performance is due
-during the performance of the contract (half consignment delivered and half not given)
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Anticipatory breach of contract
It occurs when a party to an executory contract declares his intention of not performing the contract before the performance is due. he may do so
-by expressly renouncing his obligation under the contract
e.g. A undertakes to supply certain goods to B on 1st January .before this date ,he informs B that he is not going to supply the goods .
-by doing some act so that performance of his promise becomes impossible.
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The rights of the promisee in case of anticipatory breach are as following;
-he can treat the contract as discharged
-he can immediately take a legal action
ANTICIPATORY BREACH DOES NOT NECESSARILY DISCHARGE THE CONTRACT ,UNLESS THE PROMISEE SO CHOOSES
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Rescission
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rescission
When a contract is broken by one party the other party may sue to treat the contract as rescinded and refuse further performance. in such a case ,he is absolved of all his obligations under the contract.
Ex. A promises B to supply 10 bags of cement on a certain day. B agrees to pay the price after the receipt of the goods. A does not supply the goods. B is discharged from liability to pay the price.
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Party rightfully rescinding contract entitled to compensation(section-75)
A, a singer ,contracts with B, the manager of a theatre ,to sing at his theatre for 2 nights in every week during the next 2 months ,and B engages to pay her rs.100 for each night’s performance. on the sixth night, A willfully absents herself and B in consequences rescinds the contract. B is entitled o claim compensation for the damage which he has sustained through the non-fulfillment of the contract.
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Specific performance
In certain cases the court may direct the party in breach to carry out his performance according to the terms of the contract .this is a discretion by the court for specific performance of the contract at the suit of the party not in breach.
Some of the cases specific performance be enforced are as follows:
-when the act agreed to be done is such that compensation in money for it’s non-performance is not an adequate relief.
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When there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done
When it is probable that the compensation in money cannot be got for the non-performance of the act agreed to be done
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Injunction
Where a party is in breach of a negative term of a contract (i.e. where he is doing something which he promised not to do), the court may by issuing an order ,restrain him from doing what he promised not to do ,such an order of the court is known as “injunction”
Ex. N, a film actress ,agreed to act exclusively for W for a year and for no one else. during the year she contracted to act for Z .held she could be restrained by injunction from doing so. [Warner bros. v.nelson (1937)]
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Quantum Meruit
This phrase literally means ‘as much as earned'. this right arises where a contract partly performed by one party, has become discharged by the breach of the contract by the other party.
In other words unless a party has performed his promise in it’s entirely ,it cannot claim performance from the other.
But in certain cases ,when a person has done some work under the contract and the other party repudiated the contract ,or some events happen which makes the further performance of the contract impossible,then the party who has performed the contract can claim remuneration for the work he has already done.
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When the contract is discovered unenforceable (sec 65)
Eg. A pays B rs 1000 in consideration of B’s promising marry C, A’s daughter .C is dead at the time of promise. the agreement is void ,but B must repay A the 1000 rs.
Where one party abandons or refuses to perform the contract
When a contract is completely performed but badly
Eg. Decorating a house badly
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Damages
-Damages are a monetory compensation allowed to the injured party by the court for the loss or injury suffered by him by breach of a contract
The object of awarding damges for the breach of a contract is to put the injured party in the same position ,so far as money can do it,as if he had not been injured
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Rules relating to damages
-Damages arising naturally-ordinary damages
-special damages-e.g.. specimen of goods to be sent at exhibition and a note written on the consignment “must be at new castle Monday certain”
-vindictive or exemplary damages-given for a wrong doing eg.cheque bounce, breach of a promise to marry
-Nominal damages-small damages
-damages for loss of reputation
-cost of decree-the suit for damages is in discreation of the court
-damages agreed upon in advance in case of breach
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EXERCISE
1.A contracts to supply a specific car to B a month after the date o the contract. within the month A sells the car to C. thereupon B sues A for breach of contract. A contends that he could still perform the contract by repurchasing the car from C .Is C’s contention valid?
2.A owned a room in hotel which was hired to B for watching the coronation procession of King Edward II at $141payable at the time of the contract.$100 were paid in cash .but before the balance was paid, the procession was cancelled. B filed a suit for the recovery of the amount he had paid. Decide.
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3.A enters into a contract with B for singing at his theatre for three nights for a fee of rs.100 for every night. she sings for two nights and is taken ill.
(a) Can B ask for damages for loss of profit from A?
(b) Would your answer be different if A sings for the theatre another night?
AMITY GLOBALBUSINESS SCHOOL