Discharge of Contract

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DISCHARGE OF DISCHARGE OF CONTRACTCONTRACT

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DISCHARGE OF CONTRACTDISCHARGE OF CONTRACT

When an agreement, which was binding When an agreement, which was binding on the parties to it, ceases to bind them, on the parties to it, ceases to bind them, the contact is said to be discharged. A the contact is said to be discharged. A contract may be discharged in the contract may be discharged in the following ways:following ways:

1.1. By Performance of the contract ;By Performance of the contract ;2.2. By breach of the contract ;By breach of the contract ;3.3. By impossibility of performance ;By impossibility of performance ;4.4. By Agreement.By Agreement.

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1. 1. DISCHARGE BY PERFORMANCEDISCHARGE BY PERFORMANCE

Under a contract each party is bound to Under a contract each party is bound to perform his part of the obligation. After the perform his part of the obligation. After the parties have made due performance of the parties have made due performance of the contract, their liability under the contract contract, their liability under the contract comes to an end. In such a case the comes to an end. In such a case the contract is said to be discharged by contract is said to be discharged by performance. performance.

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2. DISCHARGE BY BREACH OF CONTRACT2. DISCHARGE BY BREACH OF CONTRACT

When a party having a duty to perform a contract fails to do When a party having a duty to perform a contract fails to do that, or does an act whereby the performance of the contract that, or does an act whereby the performance of the contract by him becomes impossible, or he refuses to perform the by him becomes impossible, or he refuses to perform the contract, there is said to be a breach of contract on his part. On contract, there is said to be a breach of contract on his part. On the breach of contract by one party, the other party is the breach of contract by one party, the other party is discharged from his obligation to perform his part of the discharged from his obligation to perform his part of the obligation, and he also gets a right to sue the party making the obligation, and he also gets a right to sue the party making the breach of contract for damages for the loss occasioned to him breach of contract for damages for the loss occasioned to him due to the breach of contract. The breach of contract may be due to the breach of contract. The breach of contract may be either actual, i.e., non-performance of the contract on the due either actual, i.e., non-performance of the contract on the due date of performance, or anticipatory, i.e., before the due date of date of performance, or anticipatory, i.e., before the due date of performance has come. For example, performance has come. For example, AA is to supply certain is to supply certain goods to goods to B B on 1st January. On 1st January on 1st January. On 1st January A A does not supply does not supply the goods. He has made actual breach of contract. On the the goods. He has made actual breach of contract. On the other hand, if other hand, if A A informs informs B B on 1st December that he will not on 1st December that he will not performperform the contract on 1st January next, the contract on 1st January next, A A has made has made anticipatory breach of contractanticipatory breach of contract

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ANTICIPATORY BREACH OF CONTRACTANTICIPATORY BREACH OF CONTRACT

It means the repudiation of a contract by one party to it It means the repudiation of a contract by one party to it before the due date of its performance has arrived. before the due date of its performance has arrived. Section 39, which contains law relating to anticipatory Section 39, which contains law relating to anticipatory breach of contract is as follows:breach of contract is as follows:“ “ When a party to a contract has refused to perform, or When a party to a contract has refused to perform, or disabled himself from performing, his promise in its disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his unless he has signified, by words or conduct, his acquiescence in its continuanceacquiescence in its continuance.”.”Anticipatory breach of contract could be made by Anticipatory breach of contract could be made by promisor, either by refusing to perform the contract, or promisor, either by refusing to perform the contract, or disabling himself from performing the contract in its disabling himself from performing the contract in its entirety, before the due date of performance has arrived. entirety, before the due date of performance has arrived. When the refusal to perform the contract in its entirety is When the refusal to perform the contract in its entirety is not there, it is not to be considered to be a case of not there, it is not to be considered to be a case of anticipatory breach within the meaning of section 39. anticipatory breach within the meaning of section 39.

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ANTICIPATORY BREACH OF CONTRACTANTICIPATORY BREACH OF CONTRACTIn In West Bengal Financial Corporation Vs. Gluco Series West Bengal Financial Corporation Vs. Gluco Series AIR 1973 Cal.AIR 1973 Cal., , A A granted a loan to granted a loan to B B amounting to Rs. amounting to Rs. 4,38,000 and also agreed to grant a further loan of Rs. 1, 4,38,000 and also agreed to grant a further loan of Rs. 1, 62,000 at its discretion, provided that 62,000 at its discretion, provided that BB made the repayment of made the repayment of the loan in accordance with the agreement at the rate of Rs. the loan in accordance with the agreement at the rate of Rs. 60,000 every year. 60,000 every year. B B failed to make the repayment as agreed. failed to make the repayment as agreed. B B insisted that insisted that A A should grant further loan of Rs. 1,62,000 to should grant further loan of Rs. 1,62,000 to him, but him, but AA did not grant further loan because did not grant further loan because B B did not make did not make the repayment of loan as agreed. the repayment of loan as agreed. B’s B’s contention was that contention was that AA had failed tom perform the contract by not advancing further had failed tom perform the contract by not advancing further loan, which should be considered to be breach of contract. It loan, which should be considered to be breach of contract. It was, however, held that was, however, held that A A had already advanced some loan, had already advanced some loan, which which B B had accepted, there cannot be said to be a refusal on had accepted, there cannot be said to be a refusal on A’s A’s part to performance of the contract in its entirety. part to performance of the contract in its entirety. B B was was therefore not entitled to put an end to the contract on the therefore not entitled to put an end to the contract on the ground of breach of contract on the part of ground of breach of contract on the part of A A ..

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ANTICIPATORY BREACH OF CONTRACTANTICIPATORY BREACH OF CONTRACT

The position is further explained by illustration (b) to The position is further explained by illustration (b) to section 39, which is under:section 39, which is under:A, A, a singer, enters into a contract witha singer, enters into a contract with B B , the manager , the manager of a theatre to sing at his theatre two nights in every of a theatre to sing at his theatre two nights in every week during the next two months, and week during the next two months, and BB agrees to pay agrees to pay her 100 rupees for each night’s performance. On the her 100 rupees for each night’s performance. On the sixth night sixth night A A wilfully absents herself from the theatre. wilfully absents herself from the theatre. B B is at liberty to put an end to the contract. is at liberty to put an end to the contract.The above illustration to section 39 may create a The above illustration to section 39 may create a misapprehension that in this case absenting on one of misapprehension that in this case absenting on one of the nights is only partial refusal to perform the contract the nights is only partial refusal to perform the contract and not failure to perform the contract in its entirety. In and not failure to perform the contract in its entirety. In Sooltan Chund Vs. Schiller (1879)Sooltan Chund Vs. Schiller (1879) it was observed it was observed that even absence on one night in this illustration is that even absence on one night in this illustration is breach of the contract in its entirety.breach of the contract in its entirety.

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EFFECT OF ANTICIPATORY BREACH OF CONTRACTEFFECT OF ANTICIPATORY BREACH OF CONTRACT

When the promisor has made anticipatory breach of When the promisor has made anticipatory breach of contract, “the promisee may put an end to the contract, contract, “the promisee may put an end to the contract, unless he has signified by words or conduct his unless he has signified by words or conduct his acquiescence in its continuance.” acquiescence in its continuance.” It means that on the breach of contract by one party, the It means that on the breach of contract by one party, the other party has two alternatives open to him, viz.,other party has two alternatives open to him, viz.,(i) He may rescind the contract immediately, i.e., he may (i) He may rescind the contract immediately, i.e., he may treat the contract as an end, and may bring an action for treat the contract as an end, and may bring an action for the breach of contract without waiting for the appointed the breach of contract without waiting for the appointed date of the performance of the contract,date of the performance of the contract,(ii) He may not put an end to the contract but treat it as (ii) He may not put an end to the contract but treat it as still subsisting and alive and wait for the performance of still subsisting and alive and wait for the performance of the contract on the appointed date.the contract on the appointed date.

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EFFECT OF ANTICIPATORY BREACH OF CONTRACTEFFECT OF ANTICIPATORY BREACH OF CONTRACT

(i) ELECTION TO RESCIND THE CONTRACT(i) ELECTION TO RESCIND THE CONTRACT

When the promisee accepts the repudiation of When the promisee accepts the repudiation of the contract even before the due date of the contract even before the due date of performance, and elects to treat the contract at performance, and elects to treat the contract at an end, he is discharged from his obligation to an end, he is discharged from his obligation to perform the contract, and also gets a right to perform the contract, and also gets a right to bring an action for the breach of contract, if he bring an action for the breach of contract, if he so likes, even before the due date of so likes, even before the due date of performance has arrived.performance has arrived.

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(i) ELECTION TO RESCIND THE CONTRACT(i) ELECTION TO RESCIND THE CONTRACT

In Hochester Vs. De La Tour (1853) In Hochester Vs. De La Tour (1853) the Defendant engaged the the Defendant engaged the plaintiff on 12th April, 1852, as a courier to accompany him on the plaintiff on 12th April, 1852, as a courier to accompany him on the tour of Europe. The tour was agreed to begin on 1st June, 1852 and tour of Europe. The tour was agreed to begin on 1st June, 1852 and the plaintiff was to be paid £ 10 per month for his services. On 11th the plaintiff was to be paid £ 10 per month for his services. On 11th May, 1952 the defendant wrote to the plaintiff informing him that he May, 1952 the defendant wrote to the plaintiff informing him that he has changed his mind and declined to take the services of the has changed his mind and declined to take the services of the plaintiff. On 22nd May, 1852, the plaintiff brought an action against plaintiff. On 22nd May, 1852, the plaintiff brought an action against the defendant for the breach of contract. The defendant contended the defendant for the breach of contract. The defendant contended that there could be no breach of contract before 1st June. It was that there could be no breach of contract before 1st June. It was held that a party to an executory contract may make a breach of held that a party to an executory contract may make a breach of contract before the actual date of performance, and the plaintiff, in contract before the actual date of performance, and the plaintiff, in such a case, is entitled to put an end to the contract and he can such a case, is entitled to put an end to the contract and he can bring an action even before the actual date of performance has bring an action even before the actual date of performance has arrived. The plaintiff’s action therefore succeeded.arrived. The plaintiff’s action therefore succeeded.

In Frost Vs. Knight (1872) In Frost Vs. Knight (1872) the defendant promised to marry the the defendant promised to marry the plaintiff on the defendant’s father’s death. While defendant’s father plaintiff on the defendant’s father’s death. While defendant’s father was, still alive, he renounced the contract. The plaintiff did not wait was, still alive, he renounced the contract. The plaintiff did not wait till the defendant’s father’s death and immediately sued him, and till the defendant’s father’s death and immediately sued him, and she was successful in her action.she was successful in her action.

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(ii)(ii) ELECTION TO KEEP THE CONTRACT ALIVEELECTION TO KEEP THE CONTRACT ALIVE

Anticipatory breach of contract by one party does not automatically Anticipatory breach of contract by one party does not automatically put an end to the contract. It has already been noted above that on put an end to the contract. It has already been noted above that on the anticipatory breach by one party the other party can exercise the the anticipatory breach by one party the other party can exercise the option either to treat the contract at an end, or, to treat it as still option either to treat the contract at an end, or, to treat it as still subsisting until the due date of performance comes. As pointed out subsisting until the due date of performance comes. As pointed out by the Supreme Court in the case ofby the Supreme Court in the case of State of Kerala Vs. Cochin State of Kerala Vs. Cochin Chemical Refineries, AIR. 1968Chemical Refineries, AIR. 1968, “Breach of contract by one party , “Breach of contract by one party does not automatically terminate the obligation under the contract : does not automatically terminate the obligation under the contract : the injured party has the option either to treat the contract as still in the injured party has the option either to treat the contract as still in existence, or to regard himself a discharged. If he accepts the existence, or to regard himself a discharged. If he accepts the discharge of the contract by the other party, the contract is at an end. discharge of the contract by the other party, the contract is at an end. If he does not accept the discharge, he may insist on the If he does not accept the discharge, he may insist on the performance.”performance.”When the contract is kept alive by the promisee, the promisor may When the contract is kept alive by the promisee, the promisor may perform the same, in spite of the fact that he had earlier repudiated it. perform the same, in spite of the fact that he had earlier repudiated it. If the promisor still fails to perform the contract on the due date, the If the promisor still fails to perform the contract on the due date, the promisee will be entitled to claim compensation on the basis of the promisee will be entitled to claim compensation on the basis of the breach of the contract on the agreed date of performance.breach of the contract on the agreed date of performance.

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IllustrationIllustrationA,A, a singer, enters into a contract with a singer, enters into a contract with B, B, the the manager of a theatre, to sing at his theatre two manager of a theatre, to sing at his theatre two nights in every week during the next two months, nights in every week during the next two months, and and BB engages to pay her at the rate of 100 engages to pay her at the rate of 100 rupees for each night. On the sixth night rupees for each night. On the sixth night A A wilfully absents herself. With the assent of wilfully absents herself. With the assent of B, A B, A sings on the seventh night. sings on the seventh night. B B has signified his has signified his acquiescence in the continuance of the contract, acquiescence in the continuance of the contract, and cannot now put an end to it, but is entitled to and cannot now put an end to it, but is entitled to compensation for the damage sustained by him compensation for the damage sustained by him through through A’s A’s failure to sing on the sixth nightfailure to sing on the sixth night

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The case of The case of Avery Vs. Bowden (1855) Avery Vs. Bowden (1855) illustrates the point where the illustrates the point where the promisee elects to keep the contract alive, and the promisor in spite of promisee elects to keep the contract alive, and the promisor in spite of his earlier repudiation of the contract is discharged from liability his earlier repudiation of the contract is discharged from liability because of supervening circumstances before the date of the because of supervening circumstances before the date of the performance arrives. In this case, performance arrives. In this case, A A chartered chartered B’s B’s ship at Odessa, a ship at Odessa, a Russian port, and undertook to load the ship with cargo within 45 days. Russian port, and undertook to load the ship with cargo within 45 days. Before this period had elapsed, Before this period had elapsed, A A failed to supply the cargo and failed to supply the cargo and declined to supply the same. The master of the ship continued to insist declined to supply the same. The master of the ship continued to insist that the cargo be supplied but that the cargo be supplied but A A continued to refuse to load. Before continued to refuse to load. Before the period of 45 days was over, Crimean War broke out between the period of 45 days was over, Crimean War broke out between England and Russia, whereby it became illegal to load cargo at a England and Russia, whereby it became illegal to load cargo at a hostile port. The question in this case was, whether by declaration of hostile port. The question in this case was, whether by declaration of the war the war A A had been discharged from liability to load the cargo. In this had been discharged from liability to load the cargo. In this case, on case, on A’s A’s refusal to load the cargo refusal to load the cargo B B could have rescinded the could have rescinded the contract and brought an action against contract and brought an action against A, A, but but B B instead, by insisting instead, by insisting that the cargo be supplied, kept the contract alive. The contact that the cargo be supplied, kept the contract alive. The contact continued to be alive and subsisting for the benefit of both continued to be alive and subsisting for the benefit of both A A and and BB. By . By the declaration of war, the performance of the contract having become the declaration of war, the performance of the contract having become unlawful, it was held that unlawful, it was held that A A had been discharged from his duty to had been discharged from his duty to supply the cargo, and, therefore, supply the cargo, and, therefore, A A could not be made liable for non-could not be made liable for non-performance of the contract.performance of the contract.

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3. DISCHARGE BY IMPOSSIBILITY OF 3. DISCHARGE BY IMPOSSIBILITY OF PERFORMANCEPERFORMANCE

Both under the English and Indian law a contract Both under the English and Indian law a contract the performance of which is impossible the same the performance of which is impossible the same is void for that reason. is void for that reason. Section 56, which deals with this question, Section 56, which deals with this question, mentions two kinds of impossibility. mentions two kinds of impossibility. Firstly, impossibility existing at the time of the Firstly, impossibility existing at the time of the making of the contract. making of the contract. Secondly, a contract which is possible of Secondly, a contract which is possible of performance and lawful when made, but the performance and lawful when made, but the same becomes impossible or unlawful thereafter same becomes impossible or unlawful thereafter due to some supervening event.due to some supervening event.

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1. INITIAL IMPOSSIBILITY1. INITIAL IMPOSSIBILITY

An agreement to do an act impossible in itself is An agreement to do an act impossible in itself is void. The object of making any contract is that void. The object of making any contract is that the parties to it would perform their respective the parties to it would perform their respective promises. If a contract is impossible of being promises. If a contract is impossible of being performed., the parties to it will never be able to performed., the parties to it will never be able to fulfil their object, and hence such an agreement fulfil their object, and hence such an agreement is void. For example, is void. For example, A A agrees with agrees with B B to to discover treasure by magic. The performance of discover treasure by magic. The performance of the agreement being impossible, the agreement the agreement being impossible, the agreement is void. Similarly, an agreement to bring a dead is void. Similarly, an agreement to bring a dead man to life is also void.man to life is also void.

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2. SUBSEQUENT IMPOSSIBILITY2. SUBSEQUENT IMPOSSIBILITY

The performance of the contract may be The performance of the contract may be possible when the contract is entered into but possible when the contract is entered into but because of some event, which the promisor because of some event, which the promisor could not prevent, the performance may become could not prevent, the performance may become impossible or unlawful. Section 56 makes the impossible or unlawful. Section 56 makes the following provision regarding the validity of such following provision regarding the validity of such contracts :contracts :““A contract to do an act which after the contract A contract to do an act which after the contract is made, becomes impossible, or by reason of is made, becomes impossible, or by reason of some event which the promisor could not some event which the promisor could not prevent, unlawful, becomes void when the act, prevent, unlawful, becomes void when the act, becomes impossible or unlawful.” becomes impossible or unlawful.”

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2. SUBSEQUENT IMPOSSIBILITY2. SUBSEQUENT IMPOSSIBILITY

It means that every contract is based on the assumption that the It means that every contract is based on the assumption that the parties to the contract will be able to perform the same when the due parties to the contract will be able to perform the same when the due date of performance arrives. If because of some event the date of performance arrives. If because of some event the performance has either become impossible or unlawful, the contract performance has either become impossible or unlawful, the contract becomes void. Section 56 explains this point with the help of following becomes void. Section 56 explains this point with the help of following illustrations: illustrations:

A A and and B B contract to marry each other. Before the time fixed for contract to marry each other. Before the time fixed for marriage, marriage, A A goes mad. The contract becomes void.goes mad. The contract becomes void.

A A Contracts to take in cargo forContracts to take in cargo for B B at a foreign port. at a foreign port. A’s A’s Government Government afterwards declares war against the country in which the port is afterwards declares war against the country in which the port is situated. The contract becomes void when war is declared.situated. The contract becomes void when war is declared.

A A contracts to act at a theatre for six months in consideration of a contracts to act at a theatre for six months in consideration of a sum paid in advance by sum paid in advance by B. B. On several occasions On several occasions A A is too ill to act. is too ill to act. The contract to act on those occasions becomes void.The contract to act on those occasions becomes void.

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THE DOCTRINE OF FRUSTRATIONTHE DOCTRINE OF FRUSTRATION

When the performance of the contract When the performance of the contract becomes impossible, the purpose which becomes impossible, the purpose which the parties have in mind is frustrated. the parties have in mind is frustrated. Because of a supervening event when the Because of a supervening event when the performance becomes impossible, the performance becomes impossible, the promisor is excused from the performance promisor is excused from the performance of the contract. This is known as doctrine of the contract. This is known as doctrine of frustration under the English law, and is of frustration under the English law, and is covered by section 56 of the Indian covered by section 56 of the Indian Contract ActContract Act

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The basis of the doctrine of frustration was explained by The basis of the doctrine of frustration was explained by Mukerjea J. in the Supreme Court decision of Mukerjea J. in the Supreme Court decision of Satyabrata Satyabrata Ghose Vs. Mugneeram (1954)Ghose Vs. Mugneeram (1954)m in the following words :m in the following words :“ “ The essential idea upon which the doctrine (of The essential idea upon which the doctrine (of frustration) is based is that of impossibility of performance frustration) is based is that of impossibility of performance of the contract ; in fact impossibility and frustration are of the contract ; in fact impossibility and frustration are often used as interchangeable expressions. The changed often used as interchangeable expressions. The changed circumstances make the performance of the contract circumstances make the performance of the contract impossible and the parties are absolved from the further impossible and the parties are absolved from the further performance of it as they did not promise to perform an performance of it as they did not promise to perform an impossibility …….. The doctrine of frustration is really an impossibility …….. The doctrine of frustration is really an aspect or part of the law of discharge of contract by aspect or part of the law of discharge of contract by reason of supervening impossibility or illegality of the act reason of supervening impossibility or illegality of the act agreed to be done and hence comes within the purview of agreed to be done and hence comes within the purview of section 56 of the Contract Act.”section 56 of the Contract Act.”

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In Taylor Vs. Caldwell (1863) In Taylor Vs. Caldwell (1863) It was held that when It was held that when the contract is positive and absolute, but subject to an the contract is positive and absolute, but subject to an express or implied condition, e.g., a particular thing shall express or implied condition, e.g., a particular thing shall continue to exist, then in such a case, if the thing ceases continue to exist, then in such a case, if the thing ceases to exist, the parties are excused from performing the to exist, the parties are excused from performing the contract. In this case contract. In this case A A agreed with agreed with B B to give him the to give him the use of a music hall and gardens for holding concerts on use of a music hall and gardens for holding concerts on four different dates. four different dates. B B agreed to pay a rent of £ 100 for agreed to pay a rent of £ 100 for each of the four days. Before the date of performance each of the four days. Before the date of performance arrived, the music hall was destroyed by fire. arrived, the music hall was destroyed by fire. B B sued sued A A for the breach of the contract. It was held that the for the breach of the contract. It was held that the perishing of the hall without any fault on the part of perishing of the hall without any fault on the part of A A had made the performance of the contract impossible had made the performance of the contract impossible and, therefore, and, therefore, A A was not liable for the non-performance was not liable for the non-performance of the contract.of the contract.

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THE DOCTRINE OF FRUSTRATIONTHE DOCTRINE OF FRUSTRATIONIn In Har Prasad Chaubey Vs. Union of India !973 S.C. Har Prasad Chaubey Vs. Union of India !973 S.C. the the appellant was the highest bidder for slack coal belonging to appellant was the highest bidder for slack coal belonging to the respondents’ railways. The appellant made full payment the respondents’ railways. The appellant made full payment for the same. When he applied for the wagons for for the same. When he applied for the wagons for transporting the coal to Ferozabad, the same was refused by transporting the coal to Ferozabad, the same was refused by Coal Commissioner on the ground that the coal was meant Coal Commissioner on the ground that the coal was meant to be consumed locally only. No such condition existed when to be consumed locally only. No such condition existed when the auction of the coal was made. The appellant then filed the auction of the coal was made. The appellant then filed suit for the refund of the amount paid by him and also suit for the refund of the amount paid by him and also interest on the amount on the ground that the contract had interest on the amount on the ground that the contract had become frustrated after the permission to transport the coal become frustrated after the permission to transport the coal was refused. Appellants claim was accepted and he was was refused. Appellants claim was accepted and he was allowed the refund of the money. The reason for the decision allowed the refund of the money. The reason for the decision was that the refusal of the Coal Commissioner to allow the was that the refusal of the Coal Commissioner to allow the movement of the coal to Ferozabad, in spite of the fact that movement of the coal to Ferozabad, in spite of the fact that no such condition was there at the time of the auction, had no such condition was there at the time of the auction, had frustrated the contract.frustrated the contract.

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CONTRACT NOT FRUSTRATED BY CONTRACT NOT FRUSTRATED BY MERE COMMERCIAL DIFFICULTYMERE COMMERCIAL DIFFICULTY

Merely because the procurement of the Merely because the procurement of the goods becomes difficult because of a goods becomes difficult because of a strike in the mill, or there is a rise in prices, strike in the mill, or there is a rise in prices, or a person will not be able to earn the or a person will not be able to earn the expected amount of profits, is not enough expected amount of profits, is not enough to frustrate the contract.to frustrate the contract.

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In Ganga Saran Vs. Ram Charan, In Ganga Saran Vs. Ram Charan, (AIR 1952 S.C.) (AIR 1952 S.C.) the defendant the defendant agreed to supply 61 bales of cloth of certain specifications agreed to supply 61 bales of cloth of certain specifications manufactured by the New Victoria Mills, Kanpur, to the plaintiff. The manufactured by the New Victoria Mills, Kanpur, to the plaintiff. The agreement by the defendant stated: “We shall continue sending agreement by the defendant stated: “We shall continue sending goods as soon as they are prepared to you upto 17-11- 47. We shall goods as soon as they are prepared to you upto 17-11- 47. We shall go on supplying goods to you of the Victoria Mills as soon as they go on supplying goods to you of the Victoria Mills as soon as they are supplied to us by the Mill.” As the Mills did not supply the goods are supplied to us by the Mill.” As the Mills did not supply the goods to the defendant, he did not supply any cloth to the plaintiff. In an to the defendant, he did not supply any cloth to the plaintiff. In an action by the plaintiff for damages for the non-performance of the action by the plaintiff for damages for the non-performance of the contract, the defendant contended that the contract had been contract, the defendant contended that the contract had been frustrated by the circumstances beyond his control. It was held the frustrated by the circumstances beyond his control. It was held the delivery of the goods was not contingent on the supply of goods by delivery of the goods was not contingent on the supply of goods by the Victoria Mills, and therefore, the contract had not been frustrated the Victoria Mills, and therefore, the contract had not been frustrated by the non-supply of goods to the sellers, by the particular Mills. by the non-supply of goods to the sellers, by the particular Mills. It was observed: It was observed: ““The agreement does not seem to us to convey the meaning that The agreement does not seem to us to convey the meaning that delivery of the goods was made contingent on their being supplied delivery of the goods was made contingent on their being supplied to the respondent firm by the Victoria Mills. We find it difficult to hold to the respondent firm by the Victoria Mills. We find it difficult to hold that the parties ever contemplated the possibility of goods not being that the parties ever contemplated the possibility of goods not being supplied at all. The words “prepared by the Mill” are only a supplied at all. The words “prepared by the Mill” are only a description of the goods to be supplied, and the expressions “as description of the goods to be supplied, and the expressions “as soon as they are prepared” and “as soon as they are supplied to us soon as they are prepared” and “as soon as they are supplied to us by the said Mill” simply indicate the process of delivery …. That by the said Mill” simply indicate the process of delivery …. That being so, we are unable to hold that the performance of the contract being so, we are unable to hold that the performance of the contract had become impossible”had become impossible”

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RESTORING BENEFIT ON SUBSEQUENT RESTORING BENEFIT ON SUBSEQUENT IMPOSSIBILITYIMPOSSIBILITY

It has already been noted above that when, due to the It has already been noted above that when, due to the happening of some event, the performance of the contract happening of some event, the performance of the contract becomes impossible or unlawful the contract becomes becomes impossible or unlawful the contract becomes void. Each party is discharged from its obligation to void. Each party is discharged from its obligation to perform the contract. It is just possible that before the perform the contract. It is just possible that before the contract becomes void, one of the parties may have contract becomes void, one of the parties may have already gained some advantage under the contract. Such already gained some advantage under the contract. Such benefit received by a party has to be restored to the other. benefit received by a party has to be restored to the other. The relevant provision contained in section 65, which The relevant provision contained in section 65, which permits such restoration of the benefit, is as under:permits such restoration of the benefit, is as under:““When an agreement is discovered to be void, or when a When an agreement is discovered to be void, or when a contract becomes void, any person who has received any contract becomes void, any person who has received any advantage under such agreement or contract is bound to advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person restore it, or to make compensation for it, to the person from whom he received it”from whom he received it”

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IllustrationsIllustrations(a) (a) A Pays B 1,000 rupees, in consideration of B’s A Pays B 1,000 rupees, in consideration of B’s

promising to marry C, A’s daughter. C is dead promising to marry C, A’s daughter. C is dead at at the time of the promise. The agreement is void, the time of the promise. The agreement is void, but but B must repay A the 1,000 rupees.B must repay A the 1,000 rupees.

(b) (b) A contracts with B to deliver to him 250 maunds A contracts with B to deliver to him 250 maunds of of rice before first of May. A delivers 130 maunds rice before first of May. A delivers 130 maunds

only before that day, and none after. B retains only before that day, and none after. B retains the the 130 maunds after the first of May. He is bound to 130 maunds after the first of May. He is bound to

pay A for them.pay A for them.(c) (c) A, a singer, contracts with B, the manager of a A, a singer, contracts with B, the manager of a

theatre, to sing at his theatre for two nights in theatre, to sing at his theatre for two nights in every every week during the next two months, and B week during the next two months, and B engages engages to pay her a hundred rupees for each to pay her a hundred rupees for each night’s night’s performance. On the sixth night, A wilfully performance. On the sixth night, A wilfully absents absents herself from the theatre, and b, in herself from the theatre, and b, in consequence consequence rescinds the contract, b must pay a rescinds the contract, b must pay a for the five for the five nights on which she has sung.nights on which she has sung.

2626

(4) DISCHARGE BY AGREEMENT AND (4) DISCHARGE BY AGREEMENT AND NOVATIONNOVATION

Section 62 and 63 deals with contracts in which the Section 62 and 63 deals with contracts in which the obligation of the parties to it may end by consent of the obligation of the parties to it may end by consent of the parties.parties.

NovationNovationNovation means substitution of an existing contract with Novation means substitution of an existing contract with a new one. When, by an agreement between the parties a new one. When, by an agreement between the parties to a contract, a new contract replaces an existing one, to a contract, a new contract replaces an existing one, the already existing contract is thereby discharged, and the already existing contract is thereby discharged, and in its pace the obligation of the parties in respect of the in its pace the obligation of the parties in respect of the new contract comes into existence. Section 62 contains new contract comes into existence. Section 62 contains the following provision in this regard: the following provision in this regard:

2727

““62. EFFECT OF NOVATION, RESCISSION 62. EFFECT OF NOVATION, RESCISSION

AND ALTERATION OF CONTRACT –AND ALTERATION OF CONTRACT –

If the parties to a contract agree to If the parties to a contract agree to substitute a new contract for it or rescind or substitute a new contract for it or rescind or alter it, then original contract need not be alter it, then original contract need not be performed,”performed,”

Novation is of two kinds :Novation is of two kinds :

(i) Novation by change in the terms of the (i) Novation by change in the terms of the

contract, andcontract, and

(ii) Novation by change in the parties to the (ii) Novation by change in the parties to the contractcontract

2828

(i) CHANGE IN THE TERMS OF (i) CHANGE IN THE TERMS OF THE CONTRACTTHE CONTRACT

Then parties to a contract are free to alter the contract Then parties to a contract are free to alter the contract which they had originally entered into. If they do so, their which they had originally entered into. If they do so, their liability as regards the original agreement is extinguished, liability as regards the original agreement is extinguished, and in its place they become bound by the new altered and in its place they become bound by the new altered agreement. For example, A owes B 10,000 rupees. A agreement. For example, A owes B 10,000 rupees. A enters into an agreement with B , and gives B a enters into an agreement with B , and gives B a mortgage of his (A’s) estate for 5,000 rupees in place of mortgage of his (A’s) estate for 5,000 rupees in place of the debt of 10,000 rupees. This is a new contract and the debt of 10,000 rupees. This is a new contract and extinguishes the old. In this illustration the parties to the extinguishes the old. In this illustration the parties to the contract remain the same but there is a substitution of a contract remain the same but there is a substitution of a new contract with altered terms in place of the old one. It new contract with altered terms in place of the old one. It may be noted that novation is valid when both the parties may be noted that novation is valid when both the parties agree to it. As the parties have a freedom to enter into a agree to it. As the parties have a freedom to enter into a contract with any terms of their choice, they are also free contract with any terms of their choice, they are also free to alter the terms of it by their mutual consent.to alter the terms of it by their mutual consent.

2929

(ii) CHANGE IN THE PARTIES (ii) CHANGE IN THE PARTIES TO THE CONTRACTTO THE CONTRACT

It is possible that by novation an obligation may be created for one party in It is possible that by novation an obligation may be created for one party in place of another. If under an existing contract A is bound to perform the place of another. If under an existing contract A is bound to perform the contract in favour of B , the responsibility of A is bound to perform the contract in favour of B , the responsibility of A is bound to perform the contract in favour of B, the responsibility of A could be taken over by C. contract in favour of B, the responsibility of A could be taken over by C. Now instead of A being liable towards B, by novation C becomes liable Now instead of A being liable towards B, by novation C becomes liable towards B . For example, A owes money to B under a contract. It is towards B . For example, A owes money to B under a contract. It is agreed between A, B and C that B shall thenceforth accept C as his agreed between A, B and C that B shall thenceforth accept C as his debtor, instead of A. The old debt of A to B is at end and new debt debtor, instead of A. The old debt of A to B is at end and new debt from C to B has been contracted.from C to B has been contracted.It may be noted here that in such cases there should be consent of all the It may be noted here that in such cases there should be consent of all the three persons, viz., the person who wants to be discharged from the three persons, viz., the person who wants to be discharged from the liability, the person who undertakes to be liable in place of the person liability, the person who undertakes to be liable in place of the person discharged, and the person in whose favour the performance of the discharged, and the person in whose favour the performance of the contract is be liable to be made. Thus, if A and B agree that in place of contract is be liable to be made. Thus, if A and B agree that in place of A, now C will be liable, but C does not consent to it, there would be no A, now C will be liable, but C does not consent to it, there would be no novation. For example, A owes B 1,000 rupees under a contract. B owes novation. For example, A owes B 1,000 rupees under a contract. B owes C 1,000 rupees. B orders A to credit C with 1,000 rupees in his books, C 1,000 rupees. B orders A to credit C with 1,000 rupees in his books, but C does not assent to the agreement. B still owes C 1,000 rupees but C does not assent to the agreement. B still owes C 1,000 rupees and no new contract has been entered intoand no new contract has been entered into ..

3030

(ii) CHANGE IN THE PARTIES (ii) CHANGE IN THE PARTIES TO THE CONTRACTTO THE CONTRACT

The working of the doctrine of novation has been explained by The working of the doctrine of novation has been explained by Lord Selborne in Lord Selborne in Scarf Vs. Jardine Scarf Vs. Jardine in the following words:in the following words:““That, there being a contract in existence, some new contract That, there being a contract in existence, some new contract is substituted for it either between the same parties or is substituted for it either between the same parties or between different parties, the consideration mutually being the between different parties, the consideration mutually being the discharge of the old contract. A common instance of it in discharge of the old contract. A common instance of it in partnership cases is where upon the dissolution of a partnership cases is where upon the dissolution of a partnership the person who are going to continue in business partnership the person who are going to continue in business agree and undertake as between themselves and the retiring agree and undertake as between themselves and the retiring partner, that they will assume and discharge the whole partner, that they will assume and discharge the whole liabilities of the business, usually taking over the assets : and liabilities of the business, usually taking over the assets : and if, in that case, they give notice of that arrangement to a if, in that case, they give notice of that arrangement to a creditor, and ask for his accession to it, there becomes a creditor, and ask for his accession to it, there becomes a contract between the creditor who accedes and the new firm contract between the creditor who accedes and the new firm to the effect that he will accept their liability instead of the old to the effect that he will accept their liability instead of the old liability, and on the other hand, that they promise to pay him liability, and on the other hand, that they promise to pay him that consideration.”.that consideration.”.

3131

REMISSION OF PERFORMANCEREMISSION OF PERFORMANCE

Section 63 enables the promisee to agree to Section 63 enables the promisee to agree to dispense with or remit performance of promise. dispense with or remit performance of promise. The section reads as under:The section reads as under:

“ “ 63. Promisee may dispense with or remit 63. Promisee may dispense with or remit performance of promise – performance of promise – Every promisee Every promisee may dispense with or remit, wholly or in part, the may dispense with or remit, wholly or in part, the performance of the promise made to him, or may performance of the promise made to him, or may extend the time for such performance, or may extend the time for such performance, or may accept instead of it any satisfaction which he accept instead of it any satisfaction which he thinks fit.thinks fit.

3232


IllustrationsIllustrationsa)a) A promises to paint a picture for B. B afterwards A promises to paint a picture for B. B afterwards

forbids him to do so. A is no longer bound to perform forbids him to do so. A is no longer bound to perform the promise.the promise.

b)b) A owes B 5,000 rupees. A pays to B and B accepts, A owes B 5,000 rupees. A pays to B and B accepts, in satisfaction of the whole debt 2,000 rupees paid at in satisfaction of the whole debt 2,000 rupees paid at the time and place at which the 5,000 rupees were the time and place at which the 5,000 rupees were payable. The whole debt is discharged.payable. The whole debt is discharged.

c)c) A owes B 2,000 rupees, and is also indebted to other A owes B 2,000 rupees, and is also indebted to other creditors. A makes an arrangement with the creditors creditors. A makes an arrangement with the creditors including B, to pay them a composition of eight annas including B, to pay them a composition of eight annas in a rupee upon their respective demands. Payment to in a rupee upon their respective demands. Payment to B of 1,000 rupees is a discharge of B’s demand.B of 1,000 rupees is a discharge of B’s demand.

3333


The section permits a party, who is entitled The section permits a party, who is entitled to the performance of a contract, toto the performance of a contract, to

i.i. Dispense with or remit, either wholly or in Dispense with or remit, either wholly or in part, the performance of the contract, orpart, the performance of the contract, or

i.i. accept any other satisfaction instead of accept any other satisfaction instead of performance.performance.

3434

(I) DISPENSING WITH OR (I) DISPENSING WITH OR REMITTING PERFORMANCEREMITTING PERFORMANCE

The promisee has been authorised, by the above stated The promisee has been authorised, by the above stated provision, to remit or dispense with the performance of provision, to remit or dispense with the performance of the contract without any consideration. He may fully the contract without any consideration. He may fully forgo his claim, or may agree to a smaller amount in full forgo his claim, or may agree to a smaller amount in full satisfaction of the whole amount. Thus, if A promises to satisfaction of the whole amount. Thus, if A promises to paint a picture for B, B may forbid him to do so, or if A paint a picture for B, B may forbid him to do so, or if A owes Rs. 5,000 to B, B may accept from A only Rs. owes Rs. 5,000 to B, B may accept from A only Rs. 2,000 in satisfaction of the whole of his claim. In such 2,000 in satisfaction of the whole of his claim. In such cases A is discharged so far as the performance of that cases A is discharged so far as the performance of that contract is concerned. It means that if B agrees to contract is concerned. It means that if B agrees to accept Rs 2.000 in lieu of Rs 5,000 from A, he cannot accept Rs 2.000 in lieu of Rs 5,000 from A, he cannot thereafter ask a to pay the balance of Rs. 3,000.thereafter ask a to pay the balance of Rs. 3,000.

3535

ACCEPTING PERFORMANCE FROM THIRD PARTYACCEPTING PERFORMANCE FROM THIRD PARTY

The promisee, if he so likes, may accept performance from a third party, and The promisee, if he so likes, may accept performance from a third party, and while accepting such performance he may agree to forgo his claim in part. while accepting such performance he may agree to forgo his claim in part. Once the promisee accepts a smaller amount in lieu of the whole of his claim, Once the promisee accepts a smaller amount in lieu of the whole of his claim, the promisor would be thereby discharged. This is clear from the illustration the promisor would be thereby discharged. This is clear from the illustration (c) to section 63, which is as follows:(c) to section 63, which is as follows:A owes B 5,000 rupees. C Pays B 1,000 rupees, and B accepts them, in A owes B 5,000 rupees. C Pays B 1,000 rupees, and B accepts them, in satisfaction of his claim on A. This payment is a discharge of the whole claim.satisfaction of his claim on A. This payment is a discharge of the whole claim.In In Lala Kapuchand Vs. Mir Nawab HimayataliLala Kapuchand Vs. Mir Nawab Himayatali, , Khan Khan the position was the position was considered by the Supreme Court to be similar to that contained in illustration considered by the Supreme Court to be similar to that contained in illustration (c) to section 63. In this case the plaintiff had a claim of Rs. 27 lakhs against (c) to section 63. In this case the plaintiff had a claim of Rs. 27 lakhs against the defendant, the Prince Of Berar In 1949 there was a Police action and the defendant, the Prince Of Berar In 1949 there was a Police action and Hyderabad was taken over by the military. The Princes Debt Settlement Hyderabad was taken over by the military. The Princes Debt Settlement Committee set up by the Military Governor decided that the plaintiff be paid Committee set up by the Military Governor decided that the plaintiff be paid Rs. 20 lakhs in full satisfaction of his claim of Rs. 27 lakhs. The plaintiff Rs. 20 lakhs in full satisfaction of his claim of Rs. 27 lakhs. The plaintiff accepted the sum of rupees 20 lakhs from the Government in full satisfaction accepted the sum of rupees 20 lakhs from the Government in full satisfaction of his claim. He thereafter brought an action against the defendant to recover of his claim. He thereafter brought an action against the defendant to recover the balance of Rs. 7 lakhs. It was held that the position was fully covered by the balance of Rs. 7 lakhs. It was held that the position was fully covered by section 63, and the plaintiff having accepted the payment from a third person, section 63, and the plaintiff having accepted the payment from a third person, i.e., the Government, in full satisfaction of his claim had no right to bring an i.e., the Government, in full satisfaction of his claim had no right to bring an action against the defendant for the balance.action against the defendant for the balance.

3636

(II) EXTENDING THE TIME OF PERFORMANCE(II) EXTENDING THE TIME OF PERFORMANCE

Section 63 permits a party to extend the time of performance, Section 63 permits a party to extend the time of performance, and no consideration is needed for the same. The extension of and no consideration is needed for the same. The extension of time must be by a mutual understanding between the parties. A time must be by a mutual understanding between the parties. A promisee cannot unilaterally extend the time of performance promisee cannot unilaterally extend the time of performance for his own benefit. Thus, if a certain date of delivery of goods for his own benefit. Thus, if a certain date of delivery of goods has been fixed in a contract of sale of goods and the seller fails has been fixed in a contract of sale of goods and the seller fails to supply the goods on such date, the buyer cannot unilaterally to supply the goods on such date, the buyer cannot unilaterally extend the time of delivery so as to claim compensation on the extend the time of delivery so as to claim compensation on the basis of rates prevailing on the extended date. He will be basis of rates prevailing on the extended date. He will be entitled to compensate only on the basis of the rates prevailing entitled to compensate only on the basis of the rates prevailing on the actual date of performance. If the promisee grants the on the actual date of performance. If the promisee grants the extension of time be becomes bound thereby. Therefore, if the extension of time be becomes bound thereby. Therefore, if the creditor allows some time for making the payment to a debtor, creditor allows some time for making the payment to a debtor, he cannot bring an action against the debtor to recover the he cannot bring an action against the debtor to recover the debt, and if such an action is brought it will be dismissed by the debt, and if such an action is brought it will be dismissed by the court as being premature.court as being premature.

3737

(III) ACCEPTING ANY OTHER SATISFACTION (III) ACCEPTING ANY OTHER SATISFACTION INSTEAD OF PERFORMANCEINSTEAD OF PERFORMANCE

Section 63 permits the promisee to accept any other satisfaction in lieu of Section 63 permits the promisee to accept any other satisfaction in lieu of agreed performance, and this would discharge the promisor. For example, a agreed performance, and this would discharge the promisor. For example, a owes B, under a contract, a sum of money, the amount of which has not been owes B, under a contract, a sum of money, the amount of which has not been ascertained. A without ascertaining the amount gives b, and B, in satisfaction ascertained. A without ascertaining the amount gives b, and B, in satisfaction thereof, accepts, the sum of Rs. 2000. This is a discharge of the whole debt, thereof, accepts, the sum of Rs. 2000. This is a discharge of the whole debt, whatever may be its amount.whatever may be its amount.If the promisee pays less than the amount claimed and the promisor does not If the promisee pays less than the amount claimed and the promisor does not consider it to be in full and final satisfaction of his claim, the promisee’s liability consider it to be in full and final satisfaction of his claim, the promisee’s liability under the contract is not discharged, and the promisor is free to sue for the under the contract is not discharged, and the promisor is free to sue for the balance. balance. In Union of India Vs. Babulal Uttamchand, AIR 1968 Bom. In Union of India Vs. Babulal Uttamchand, AIR 1968 Bom. Some Some goods belonging to the plaintiffs were lost during transit due to the negligence goods belonging to the plaintiffs were lost during transit due to the negligence of the railway administration. The Plaintiffs’ made various claims and the of the railway administration. The Plaintiffs’ made various claims and the railway administration sent cheques along with printed letters mentioning that railway administration sent cheques along with printed letters mentioning that the said payments were in full and final satisfaction of the plaintiffs’ claims. The the said payments were in full and final satisfaction of the plaintiffs’ claims. The plaintiffs, however, informed the railway administration that this payment was plaintiffs, however, informed the railway administration that this payment was being accepted only as part payment of their claims. In an action to recover the being accepted only as part payment of their claims. In an action to recover the balance of the amount of claims, the defendants pleaded that the plaintiffs balance of the amount of claims, the defendants pleaded that the plaintiffs could not sue for the balance as the payment already made was in full and final could not sue for the balance as the payment already made was in full and final satisfaction of the claims. It was held that the plaintiffs’ suit for the balance of satisfaction of the claims. It was held that the plaintiffs’ suit for the balance of the amount was maintainable, as the amounts were not accepted in full the amount was maintainable, as the amounts were not accepted in full satisfaction of the claim.satisfaction of the claim.

3838

REMEDIES FOR BREACH OF REMEDIES FOR BREACH OF CONTRACTCONTRACT

3939


When one of the parties to the contract makes When one of the parties to the contract makes a breach of the contract the following remedies a breach of the contract the following remedies are available to the other party.are available to the other party.

1.1. Damages : Damages : Remedy by way of damages is the Remedy by way of damages is the most common remedy available to the injured most common remedy available to the injured party. This entitles the injured party to recover party. This entitles the injured party to recover compensation for the loss suffered by it due to compensation for the loss suffered by it due to the breach o9f contract, from the party who the breach o9f contract, from the party who caused the breach. Section 73 to section 75 caused the breach. Section 73 to section 75 incorporate provisions in this regard.incorporate provisions in this regard.

4040


2.2. Quantum meruit : Quantum meruit : When the injured party has When the injured party has performed a part of his obligation under the contract performed a part of his obligation under the contract before the breach of contract has occurred, he is before the breach of contract has occurred, he is entitled to recover the value of what he has done, entitled to recover the value of what he has done, under this remedy. under this remedy.

3.3. Specific Performance and Injunction :Specific Performance and Injunction :Sometimes a party to the contract instead of recovering Sometimes a party to the contract instead of recovering damages for the breach may have recourse to the damages for the breach may have recourse to the alternative remedy of specific performance of the alternative remedy of specific performance of the contract, or an injunction restraining the other party from contract, or an injunction restraining the other party from making a breach of the contract. Provisions regarding making a breach of the contract. Provisions regarding these remedies have been contained in the Specific these remedies have been contained in the Specific Relief Act, 1963.Relief Act, 1963.

4141

DAMAGESDAMAGES

Section 73 makes the following provisions regarding the Section 73 makes the following provisions regarding the might of the injured party to recover compensation for the might of the injured party to recover compensation for the loss or damage which is caused to him by the breach of loss or damage which is caused to him by the breach of contract.contract.Section 73. Compensation for loss or damage caused Section 73. Compensation for loss or damage caused by breach of contract. –by breach of contract. – When a contract has been When a contract has been broken, the party who suffers by such breach is entitled to broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, receive, from the party who has broken the contract, compensation for any loss or damage caused to him compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when things from such breach, or which the parties knew, when they made contract, to be likely to result from the breach they made contract, to be likely to result from the breach of it.of it.Such compensation is not to be given for any remote and Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the indirect loss or damage sustained by reason of the breach.breach.

4242

DAMAGESDAMAGES

Compensation for failure to discharge obligation Compensation for failure to discharge obligation resembling those created by contract. – resembling those created by contract. – When an When an obligation resembling those created by contract has obligation resembling those created by contract has been incurred and has not been discharged, any person been incurred and has not been discharged, any person injured by failure to discharge it is entitled to receive the injured by failure to discharge it is entitled to receive the same compensation from the party in default, as if such same compensation from the party in default, as if such person has contracted to discharge it and had broken his person has contracted to discharge it and had broken his contract.contract.

Explanation :- In estimating the loss or damage arising Explanation :- In estimating the loss or damage arising from a breach of contract, the means which existed of from a breach of contract, the means which existed of remedying the inconvenience caused by non-remedying the inconvenience caused by non-performance of the contract must be taken into account.”performance of the contract must be taken into account.”

4343

DAMAGESDAMAGESThe section has been explained with the help of the following The section has been explained with the help of the following illustrations :illustrations :

a)a) A contracts to sell and deliver 50 maunds of saltpetre to B , at certain A contracts to sell and deliver 50 maunds of saltpetre to B , at certain price to be paid on delivery. A breaks his promise, b is entitled to price to be paid on delivery. A breaks his promise, b is entitled to receive from A, by way of compensation, the sum, if any, by which receive from A, by way of compensation, the sum, if any, by which the contract price falls short of the price for which B might have the contract price falls short of the price for which B might have obtained 50 maunds of saltpetre of like quality at the time when the obtained 50 maunds of saltpetre of like quality at the time when the saltpetre ought to have been delivered. saltpetre ought to have been delivered.

b)b) A contracts to let his ship to B for a year from the first of January, for A contracts to let his ship to B for a year from the first of January, for a certain price. Freights rise, and on the first of January, the hire a certain price. Freights rise, and on the first of January, the hire obtainable for the ship is higher than the contract price. A breaks his obtainable for the ship is higher than the contract price. A breaks his promise. He must pay to B, by way of compensation, a sum equal to promise. He must pay to B, by way of compensation, a sum equal to the difference between the contract price and the price for which B the difference between the contract price and the price for which B could hire a similar ship for a year on and from first January.could hire a similar ship for a year on and from first January.

c)c) A contracts to repair B’s house in a certain manner, receives A contracts to repair B’s house in a certain manner, receives payments in advance. A repairs the house but not according to payments in advance. A repairs the house but not according to contract. B is entitled to recover from A the cost of making the contract. B is entitled to recover from A the cost of making the repairs conform to the contract.repairs conform to the contract.

4444

DAMAGESDAMAGES

In an action for damages for the breach of contract there In an action for damages for the breach of contract there arise two kinds of problems :arise two kinds of problems :

1.1. Firstly, it has to be determined whether them loss suffered Firstly, it has to be determined whether them loss suffered by the p0laintiff is the proximate consequence of the by the p0laintiff is the proximate consequence of the breach of contract by the defendant. The person making breach of contract by the defendant. The person making the breach of contract is liable only for the proximate the breach of contract is liable only for the proximate consequences of the breach of contract. He is not liable consequences of the breach of contract. He is not liable for damage which is remotely connected with the breach for damage which is remotely connected with the breach of contract. In other words, the first problem is the of contract. In other words, the first problem is the problem of “problem of “Remoteness of Damage.”Remoteness of Damage.”

2.2. It is found that the particular damage is the proximate It is found that the particular damage is the proximate result of the breach of contract rather than too remote, the result of the breach of contract rather than too remote, the next question arises is : How much compensation is to be next question arises is : How much compensation is to be paid for the same? This involves determining the paid for the same? This involves determining the quantum of compensation. This, in other words, is the quantum of compensation. This, in other words, is the problem of “Measure of Damages.”problem of “Measure of Damages.”

4545

REMOTENESS OF DAMAGEREMOTENESS OF DAMAGE

The following statement of Alderson B, in case of The following statement of Alderson B, in case of Hadley Vs. Hadley Vs. Baxendale (1854) Baxendale (1854) is considered to be the basis of the law to is considered to be the basis of the law to determine whether the damage is the proximate or remote determine whether the damage is the proximate or remote consequence or breach of contract :consequence or breach of contract :

““Where two parties have made a contract which one of Where two parties have made a contract which one of them has broken, the damages which the other party ought them has broken, the damages which the other party ought to receive in respect of such breach of contract should be to receive in respect of such breach of contract should be such as may be fairly and reasonably be considered either such as may be fairly and reasonably be considered either arising naturally, i.e., according to the usual course of arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may things, from such breach of contract itself, or such as may reasonable be supposed to have been in the reasonable be supposed to have been in the contemplation of both parties, at the time they made the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it”.contract, as the probable result of the breach of it”.

4646

REMOTENESS OF DAMAGEREMOTENESS OF DAMAGEThe rule in The rule in Hadley Vs. Baxendale Hadley Vs. Baxendale consists of two parts. consists of two parts. On the breach of a contract such damages can be recovered,On the breach of a contract such damages can be recovered,

(1) as may fairy and reasonably be considered arising naturally, i.e., (1) as may fairy and reasonably be considered arising naturally, i.e., according to the usual course of things from such breach,according to the usual course of things from such breach,OR OR (2) as may reasonably be supposed to have been in the contemplation of (2) as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract.both parties at the time they made the contract.In either case it is necessary that the resulting damage is the probable result In either case it is necessary that the resulting damage is the probable result of the breach of contract.of the breach of contract.The principle stated in the two branches of the rule is virtually the rule of The principle stated in the two branches of the rule is virtually the rule of “reasonable foresight.” The liability of the party making the breach of “reasonable foresight.” The liability of the party making the breach of contract depends on the knowledge, imputed or actual, of the loss likely to contract depends on the knowledge, imputed or actual, of the loss likely to arise in case of breach of contact. The first branch of the rule allows arise in case of breach of contact. The first branch of the rule allows damages for the loss arising naturally, i.e. in the usual course of things from damages for the loss arising naturally, i.e. in the usual course of things from the breach. The parties are deemed to know about the likelihood of such the breach. The parties are deemed to know about the likelihood of such loss. The second branch of the rule deals with the recovery of more loss loss. The second branch of the rule deals with the recovery of more loss which results from the special circumstances of the case. Such loss is which results from the special circumstances of the case. Such loss is recoverable, if the possibility of such loss was actually within the knowledge recoverable, if the possibility of such loss was actually within the knowledge of the parties, particularly the party who makes a breach of the contract, at of the parties, particularly the party who makes a breach of the contract, at the time of making the contract.the time of making the contract.

4747

MEASURE OF DAMAGEMEASURE OF DAMAGE

After it has been established that a certain consequence After it has been established that a certain consequence of the breach of contract is proximate and not remote of the breach of contract is proximate and not remote and the plaintiff deserves to be compensated for the and the plaintiff deserves to be compensated for the same, the next question which arises is : What is the same, the next question which arises is : What is the measure of damages for the same, or in other words the measure of damages for the same, or in other words the problem is of the assessment of compensation for the problem is of the assessment of compensation for the breach of contract. breach of contract.

Damages are compensatory in nature. The object of Damages are compensatory in nature. The object of awarding damages to the aggrieved party is to put in the awarding damages to the aggrieved party is to put in the same position in which he would have been if the same position in which he would have been if the contract had been performed.contract had been performed.

4848


In a contract of sale of goods the measure of damages is the In a contract of sale of goods the measure of damages is the difference between the contract price and the market price on difference between the contract price and the market price on the date of the breach of contract. For instance, A agrees to the date of the breach of contract. For instance, A agrees to supply B a radio set on January for Rs. 1,000. If A fails to supply B a radio set on January for Rs. 1,000. If A fails to supply the radio set and the market price of the radio set on that supply the radio set and the market price of the radio set on that date is Rs. 1,200, B will be entitled to recover from A Rs. 200 date is Rs. 1,200, B will be entitled to recover from A Rs. 200 as damages. The reason is that the loss suffered by the buyer as damages. The reason is that the loss suffered by the buyer is Rs. 200 because due to the rise in the market price of the is Rs. 200 because due to the rise in the market price of the radio set he will have to pay that much extra if he purchases the radio set he will have to pay that much extra if he purchases the radio set from the market. Similarly, if the buyer (B) refuses to radio set from the market. Similarly, if the buyer (B) refuses to take the radio set on the due Date, the seller will also be entitled take the radio set on the due Date, the seller will also be entitled to recover the difference between the contract price and the to recover the difference between the contract price and the market price on 1st January. For instance the market price of market price on 1st January. For instance the market price of the radio set on that date is Rs. 800, A’s loss is Rs.200 in the radio set on that date is Rs. 800, A’s loss is Rs.200 in respect of the transaction, because from another customer A respect of the transaction, because from another customer A can get only Rs. 800 whereas B had promised to pay Rs. can get only Rs. 800 whereas B had promised to pay Rs. 1,000 for the same. A can recover Rs. 200 from B..1,000 for the same. A can recover Rs. 200 from B..

4949


The rule in this regard was stated in The rule in this regard was stated in Borrow Vs. Borrow Vs. Arnaud (1844) Arnaud (1844) in the following words. in the following words. “ “ Where a contract to deliver goods at a certain price is Where a contract to deliver goods at a certain price is broken the proper measure of damages in general is the broken the proper measure of damages in general is the difference between the contract price and the market difference between the contract price and the market price of such goods at the time when the contract is price of such goods at the time when the contract is broken, because the purchaser having the money in his broken, because the purchaser having the money in his hands, may go into the market and buy. So, if a contract hands, may go into the market and buy. So, if a contract to accept and pay for the goods is broken, the same rule to accept and pay for the goods is broken, the same rule may be properly applied, for the seller may take his may be properly applied, for the seller may take his goods into the market and obtain the current price for goods into the market and obtain the current price for them.”them.”

5050

QUANTUM MERUITQUANTUM MERUIT

Ordinarily if a person having agreed to do some work or Ordinarily if a person having agreed to do some work or render some render some service has done only a part of what he was required to service has done only a part of what he was required to do, he cannot claim anything for what he has done. When do, he cannot claim anything for what he has done. When a person agrees to complete some work for a lump sum a person agrees to complete some work for a lump sum non-completion of the work does not entitle him to any non-completion of the work does not entitle him to any remuneration even for the part of the work done. But the remuneration even for the part of the work done. But the law recognises an important exception to this rule by way law recognises an important exception to this rule by way of an action for ‘Quantum Meruit’ Under this section if A of an action for ‘Quantum Meruit’ Under this section if A and B have entered into a contract, and A, who has and B have entered into a contract, and A, who has already performed a part of the contract, is then prevented already performed a part of the contract, is then prevented by B from performing the rest of his obligation under the by B from performing the rest of his obligation under the contract, A can recover from B reasonable remuneration contract, A can recover from B reasonable remuneration for what ever he has already done.for what ever he has already done.

5151


It may be noted that this action is not an action for It may be noted that this action is not an action for compensation for breach of contract by the other side. It compensation for breach of contract by the other side. It is an action which is alternative to an action for the is an action which is alternative to an action for the breach of contract. This action in essence is one of breach of contract. This action in essence is one of restitution, putting the party injured by the breach of restitution, putting the party injured by the breach of contract in a position in which he would have been had contract in a position in which he would have been had the not been entered into. It merely entitles the injured the not been entered into. It merely entitles the injured party to be compensated for whatever work he may have party to be compensated for whatever work he may have already done, or whatever expense he may have already done, or whatever expense he may have incurred. In the words of Alderson, B,incurred. In the words of Alderson, B,Where one party has absolutely refused to perform, or Where one party has absolutely refused to perform, or has rendered himself incapable of performing, his part of has rendered himself incapable of performing, his part of the contract, he puts it in the power of the other party the contract, he puts it in the power of the other party either to sue for the breach of it or to rescind the contract either to sue for the breach of it or to rescind the contract and sue on a and sue on a quantum meruit for the work actually done.”quantum meruit for the work actually done.”

5252

QUANTUM MERUITQUANTUM MERUITThe essentials of an action of quantum meruit are as The essentials of an action of quantum meruit are as follows :follows :

1.1. One of the parties makes a breach of contract, or One of the parties makes a breach of contract, or prevents the performance a part of it by the other side.prevents the performance a part of it by the other side.

2.2. The party injured by the breach of the contract, who has The party injured by the breach of the contract, who has already performed a part of it, elects to be discharged already performed a part of it, elects to be discharged from further performance of the contract and brings an from further performance of the contract and brings an action for whatever he has already done.action for whatever he has already done.

For instance, if A agrees to deliver B 500 bags of For instance, if A agrees to deliver B 500 bags of wheat and when A has already delivered 100 bags B wheat and when A has already delivered 100 bags B refuses to accept any further supply, A can recover from refuses to accept any further supply, A can recover from B the value of wheat which he has already delivered. B the value of wheat which he has already delivered.

5353


In In De Bernardy Vs. Harding, (1853) De Bernardy Vs. Harding, (1853) the the defendant, who was to erect and le seats to view defendant, who was to erect and le seats to view the funeral of the Duke of Wellington, appointed the funeral of the Duke of Wellington, appointed the plaintiff as his agent to advertise and sell the plaintiff as his agent to advertise and sell tickets for the seats. The plaintiff was to be paid tickets for the seats. The plaintiff was to be paid commission on the tickets sold by him. The commission on the tickets sold by him. The plaintiff incurred some expense in advertising for plaintiff incurred some expense in advertising for the tickets but before any tickets were actually the tickets but before any tickets were actually sold by him his authority to sell tickets was sold by him his authority to sell tickets was wrongfully revoked by the defendant. It was held wrongfully revoked by the defendant. It was held that the plaintiff was entitled to recover the that the plaintiff was entitled to recover the expenses already incurred by him under an expenses already incurred by him under an action action for quantum meruit.for quantum meruit.

Discharge of Contract

Documents

actual breach of contract

case of anticipatory

ground of breach

date of performance

nights performance

illustration b

impossibility of performance

loan of rs