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Discharge of Contract

By performance
By agreement or consent
By impossibility of performance
By lapse of time
By operation of law
By breach of contract

Breach of Contract & its


Remedies
Breach of Contract:
Breaking of obligation which contract
imposes
Expressly without a lawful excuse, or
By his own act makes it impossible
Confers a right of action for damages

Kinds of Breach of
Contract
Actual Breach of Contract
Anticipatory/ Constructive Breach of
Contract

Actual Breach of Contract


At the time when performance is due:
When time is an essence of contract
When time is not an essence of contract

During the performance of the contract


Express repudiation
Implied repudiation

Consequences

Anticipatory Breach of Contract


By expressly renouncing his obligation (Expressed
Repudiation)
By doing some act, which makes it impossible (Implied
Repudiation)
Options available to the aggrieved party
Treating the contract as alive & its consequences
Promisor performs his obligation
Does not perform
Supervening impossibility

Rescind the contract & its consequences


Measure of damages

Where there is a Right, there is a Remedy


Cancellation
Restitution
Rescission
Specific Performance
Injunction
Quantum Meruit
Rectification or Cancellation
Damages

Rescission
The court may grant rescission:
Where the contract is voidable by the plaintiff; or
Contract is unlawful for causes not apparent and the defendant is
more to blame

The court may however, refuse to rescind:


Where the plaintiff has expressly or impliedly ratified the contract; or
Owing to the change in circumstances (not being due to any act of
defendant); or
Where third parties have, during the subsistence of the contract,
acquired rights in
good faith and for value; or
Where only a part of the contract is to be rescinded and such part is
not severable
(Sec. 27 of Specific Relief Act, 1963)

Effects (Restitution under Sec. 64 & Damages under


Sec. 75)

Restitution
Applicability (Sec 65):
When the contract becomes void or when the agreement
is discovered to void
Not to the contracts which are known to be void

Specific Performance
Directing party to carry out his performance
Discretionary remedy by court allowed in limited number of
cases:
Monetary consideration is not an adequate remedy
Non-existence of standard for ascertaining the actual damage
Probability that compensation in money cannot be obtained
Will no be granted where:
Damages are an adequate remedy
Contract is not certain, or is inequitable to either party
Contract is in its nature revocable
Contract is made by trustees in breach of contract
Contract is of personal nature
The contract is made by company in excess of its powers as
laid in MOA

Injunction
Restraining the wrong doer from doing or continuing the
wrongful act
Where a party is in breach of a negative term of
contract
Where the court can grant injunction:
Whereby a promisor undertakes not to do something; or
Which is negative in substance though not in form

Quantum Meruit
Literally means as much as earned
Right is not founded on original contract but arises of
contract, partly
performed by the one party
Implied promise by the other party to pay for what has
been done

Rectification or Cancellation
On account of Fraud/ mutual mistake of the
parties
Court may order rectification (Sec. 27 of Special
Relief Act, 1963) or cancellation
Must not prejudice the rights acquired by third
persons in good faith and for value

Damages
Damages arising naturally- Ordinary damages
Damages in contemplation of the parties- Special
damages
Vindictive or exemplary damages
Nominal damages
Damages for the loss of reputation
Damages for inconvenience & discomfort
Mitigation of damages
Difficulty of assessment
Cost of decree
Damages agreed upon in advance

Damages
Monetary compensation for the loss suffered
Object is to have Doctrine of Restitution (Restitution in
integrum)
Fundamental basis- Pecuniary Loss which naturally flows
from
the breach.
Foundation of Modern Law of damages: Hadley V.
Baxendale,
(1854) 9 Ex. 341

Hadley V. Baxendale, (1854) 9 Ex.


341
Xs mill was stopped by the breakdown of the
shaft. He delivered the shaft to Y, a common
carrier, to be taken to a manufacturer to copy it
and make a new one. X did not made known to Y
that the delay would result in loss of profits. By
some neglect on the part of Y the delivery of the
shaft was delayed in transit beyond a
reasonable time (so that the mill was idle for a
longer period than otherwise). Held, Y was not
liable for the loss of profits during the period of
delay as the circumstances communicated to Y
did not show that the delay in the delivery of
the shaft would entail loss of profits to the mill.

Damages (Sec. 73)


When a contract has been broken, the injured party is
entitled to:
Ordinary Damages
Special Damages, but:
Not for remote or indirect loss
Damages arising of the quasi contract shall be same as any
other contract

Rules Pertaining to Damages


1. Damages arising naturally & directlyOrdinary Damages:
Measure of Damages
If the thing contracted for is not available in the
market
Absence of market at the place of delivery
Made to order goods

No remedy for remote or indirect losses


(Sec. 73)
Damage has to be actually suffered
Effect of neglect by promisee (Sec. 67)

Rules Pertaining to Damages


2. Damages in contemplation of the parties- Special
Damages:
Can not be claimed as a matter of right
Can be claimed if special circumstances result in
special loss
Can be claimed only if, brought to the notice of the
other party
3. Vindictive or Punitive or Exemplary Damages:
No place in the law of contract
Except, breach of promise to marry & Dishonor of
cheque by
banker wrongfully

Rules Pertaining to Damages


4. Nominal Damages:
Where breach is technical & injured party has no intention of
performing
Where injured party has not suffered any actual damage/ fails
to prove so
Where damage was caused, more due to the fault of injured
party
5. Damages for loss of reputation:
Generally not recoverable
Exception in case of banker who wrongfully dishonors the
cheque of a
tradesman
Rule of law

Rules Pertaining to Damages


6. Damages for inconvenience & discomfort:
Damages recovered for physical inconvenience &
discomfort
(direct/ remote)
Measure of damages not affected by motive or manner
of breach

7. Mitigation of Damages:
Duty of the injured party to take all reasonable steps
Loss suffered due to the neglect of aggrieved party

Rules Pertaining to Damages


8. Difficulty of assessment:
Damages incapable of assessment
Difficulty in assessment with certainty & precision
does not prevent
aggrieved party to claim damages (Estimation of
loss & Contingency)

9. Cost of decree:
Additional to damages
Cost of suit for damages as per the discretion of court

Rules Pertaining to Damages


10.Damages agreed upon in advance in case of
breach:
Reasonable compensation not exceeding the amount
mentioned
Liquidated damages & Penalty:
Rules for determining a stipulation as Liquidated damage
or Penalty:
Can be used interchangeably
Essence
Question of construction; judged at the time of making of contract
rather than breach
The sum stipulated is penalty, if:
Unreasonable or extravagant as compared to the greatest loss
suffered
Sum is fixed greater than the sum to be paid
Where a single lump-sum is payable on occurrence of one or more of

Payment of Interest
Rules:
1. Payment of interest incase of default
2. Payment of interest at higher rate
From the date of bond
From the date of default
3. Payment of compound interest on default:
At the same rate as simple interest
At a rate higher than simple interest
4. Payment of interest at a lower rate, if interest is paid on
due date

Ordinary Damages Vs. Liquidated


Damages
Basis of Differentiation
Meaning
Purpose
Effect

Liquidated Damages Vs. Penalty


Basis of Distinction
Meaning
Purpose
Validity

C agreed to supply to a railway


company with 3,900 tons of railway
chairs. After 1,787 tons had been
delivered the company told C that no
more will be required.

A contracts with B on Jan 1 to sell


500 tons of wheat and to deliver it on
May 1. On April 15, A writes to B and
says that he is no going to deliver
the wheat.

D engaged H on April 12, to enter


his service to accompany him upon
the tour. The employment was to
commence on June 1. On May 11, D
wrote to H telling him that his
services would no longer be required.

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.

N, a film actress agreed to act


exclusively for Warner Bros for 1
year. During the year she contracted
to act for X.

G agreed to take all the electric


energy required by his premises from
M.

A contracts to sell & deliver 50


quintals of wheat to B at Rs 775 per
quintal, the price to be paid at the
time of delivery. The price of wheat
rises to Rs. 800 per quintal. A refuses
to sell.

A, the owner of a ship, fraudulently


representing the ship to be seaworthy,
induces B, an underwriter, to insure the
ship.

S sent specimen of his goods for


exhibition at an agricultural show. After the
show he entrusted some of his samples to
an agent of a railway company for carriage
to another show ground at New Castle. On
the consignment note he wrote Must be
at New Castle Monday Certain. Owing to
the default on the part of the railway
company, the samples arrived late for the
show.

A, a builder, contracts to erect a house for B


by Jan 1, in order that B may give the
possession of it at that time to C to whom B
has contracted to let it. A is informed of the
contract between B & C. A builds the house
so badly that before the Jan 1, it falls down
and has to rebuilt by B, who, in
consequence, loses the rent which he was to
have received from C & is obliged to make
compensation to C for breach of contract.

A firm consisting of 4 partners employed


by B for a period of 2 years. After 6
months, 2 partners retired, the business
being carried on by the other two. B
declined to be employed under the
continuing partners.

A was wrongfully dismissed in a harsh &


humiliating manner by G from his
employment.

H, with his wife and children, took a ticket


for a midnight train, to be transported to
a particular place where he lived. They
were, however, transported to a wrong
place and they had to walk several miles
home on a drizzling wet night. His wife
caught cold.

H advertised a beauty competition by


which readers of certain newspapers were
to select 50 ladies. He himself was to
select 12 out of these 50. The selected 12
were
to
be
provided
theatrical
engagements. C was one of the 50 and by
Hs breach of contract she was not present
when the final selection was made.

A gives B a bond for payment of Rs. 1,000


with interest at 12% at the end of 6
months, with stipulation that in case of
default, interest shall be payable at the
rate of 75% from the date of default

D sold tyres to N who contracted not to


re-sell them, or offer them for sale, at a
price below Ds list price. N agreed to pay
a sum of Rs. 50 by the way of liquidated
damages for every breach of contract. N
sold tyre at less than the Ds listed price. D
filed a suit for the damages for the breach.

A agrees to pay B Rs. 1,000 on Jan 1, and


if he fails to make the payment at the
stipulated time he agrees to pay Rs. 1,500
as liquidated damages.

A chit fund contract which provided for


the payment of money in installments,
stipulated that on default in payment of
any of the installments all the future
installments shall be payable at the time
with interest.

F agreed to act at Ks theatre and to


conform to all regulations of the theatre.
Each party agreed that on breach by
either of them of the agreement to pay Rs.
1,000 as liquidated damages. F broke the
contract.