Prof. SVK

DISCHARGE OF CONTRACT

Prof. Shrinivas V K

Prof. SVK

Void Agreements• A void agreement is one which is not enforceable by law.

[Sec.2(g)]• The following agreements are declared to be void. 1.An agreement made by incompetent persons (Sec.11). 2.Agreement made under mutual mistake of fact (Sec.20) 3.Agreements the consideration or object is unlawful

(Sec.23) 4.Agreements the consideration or object is unlawful in part.

(Sec.24) 5.Agreement made without consideration is void ( Sec.25)

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…………….Void Agreements 6.Agreement in restraint of marriage (Sec.26) 7.Agreement in restraint of trade (Sec.27) 8.Agreement in restraint of legal proceedings (Sec.28) 9.Agreement the meaning of which is uncertain

(Sec.29)10.Agreement by way of wager (Sec.30) 11.Agreement contingent on impossible events

(Sec.36)12.Agreement to do impossible acts. (Sec.56)

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Wager / Wagering Agreement [Sec.30]

• A wager is an agreement between two parties by which one promises to pay money or money’s worth on the happening of some uncertain event in consideration of the other party’s promise to pay uncertain event in consideration of the other party’s promise to pay if the event does not happen.

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Essentials of a wagering Agreement

• 1.Promise to pay money or money’s worth• 2.Uncertain event• 3.Each party must stand to win or lose.• 4.No control over the event• 5.No other interest in the event

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The following transactions however are, not wagers

• 1. A crossword competition involving a good measure of skill for it’s successful solution

• 2.Games of skill, e.g., picture puzzles or athletic competitions• 3.A subscription or contribution or an agreement to subscribe

or contribute toward any plate (a cup or other prize for a race or other contest), prize or sum of money of the value of Rs.500 or above to be awarded to the winner or winners of a horse race (Exception to Sec.30)

• 4.Share market transactions in which delivery of stocks and shares is intended to be given and taken.

• 5.A contract of insurance.

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Contingent Contracts• Contingent contract is a contract to do something, if

some event, collateral to such contract, does or does not happen.

• Characteristics of a contingent contract.1.It’s performance depends upon the happening or non

happening in future of some event.2.The event must be uncertain.3.The uncertain future event must be collateral to the

contract.

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Performance of Contract• The parties to a contract either perform or

offer to perform their respective promises.

• By whom the contract must be performed ?

(a) By promisor himself (b) By agent (c) By legal representative (d) By joint promisors

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…Performance of Contract

• Who can demand performance ?

(a) It is only promisee himself. In case of his death, the legal representative,

who can demand performance. (b) In case of joint promisees , any of the

joint promisees can demand performance.

When all promisees die , the legal representatives of all the diseased persons can demand performance.

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Discharge of Contract

• A contract is said to be discharged when the obligations created by it come to an end.

The various modes of discharge of contract are as follows:

1.Discharge by performance2.Discharge by agreement or consent3.Discharge by impossibility4.Discharge by lapse of time5.Discharge by operation of law6.Discharge by breach of contract.

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…DISCHARGE OF CONTRACT

• 1. Discharge by performance:It takes place when the parties to a contract fulfill their obligations arising under the contract within the time and the manner prescribed. The performance may be.

(i) Actual Performance or (ii) Attempted Performance [Tender]

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…Discharge of Contract

• The rule of law in this regard is as follows:“ Eodem modo quo quid constituitor, eodem modo destituitor ” i.e., a thing may be destroyed in the same manner in which it is constituted.

This means a contractual obligation may be discharged by agreement which may be express or implied.

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……..DISCHARGE OF CONTRACT

• 2. Discharge by agreement or consent:The contract rests on the agreement of the parties. The parties may get discharged from the obligations of performance of contract by agreement or mutual consent

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Discharge.. of Contract2.Discharge by agreement or consent: The discharge by consent may be

express or implied. Discharge by consent –

• (a) Novation : When a new contract is substituted for an existing one, either between the same parties or between the one of the parties and the third party.

• (b) Rescission: When all or some of the terms of contract are cancelled.

• (c) Alteration : When one or more terms of the contract is/are altered by the mutual consent of the parties to a contract.

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……2.Discharge by agreement or consent

• (d) Remission: Acceptance of a lesser fulfillment of the promise made

• (e) Waiver: Intentional relinquishment or giving up of a right by a party entitled there to under a contract.

• (f) Merger: When an inferior right accruing to a party under a contract merges in to a superior right accruing to the same party under a new contract.

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Discharge.. of Contract

• The law does not recognize what is impossible; and• What is impossible does not create

an obligation

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3.Discharge of contract by Impossibility:

• Lexigon cogit ad impossibilia=Law does not recognize what is impossible; and

• Impossibilium nulla obligato est=What is impossible does not create an obligation.

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Discharge …of Contract• 3.Discharge by impossibility:

Impossibility of performance may be- (1) Initial impossibility or

(2) Supervening impossibility.

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3.Discharge of contract by impossibility:

(1) Initial impossibility:An agreement to do an impossible act in itself is void.

a) Known to both the parties. (…....that it is impossible)b) Unknown to both the parties.1.Eg., A sold certain goods supposed to be on the voyage2.Eg., A contracts to marry B, being already married to C

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……Discharge of Contract(2)Supervening impossibility :

Impossibility which arises subsequent to the formation of contract (which could be performed at the time when the contract was entered in to) is called supervening impossibility. The cases covered by of supervening impossibility include:

(a) Destruction of the subject mater (b) Non-Existence or non-occurrence of a

particular state of things (c) Death or incapacity for personal service (d) Change of law, &

(e) Outbreak of warThe contract is discharged in these cases.

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Discharge of Contract• The following cases are not covered

by supervening impossibility: (a) Difficulty of performance (b) Commercial impossibility (c) Failure of a third person on whose work

the promisor relied (d) Strikes, lock outs and civil disturbances (e) Failure of one of the objects

The contract is not- discharged in these cases.

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…Discharge of Contract• 4.Discharge by lapse of time:

If the contract is not performed within the period of limitation and if no action is taken by the promisee in a law court, the contract is discharged.

• 5.Discharge by operation of law:This includes discharge by,

(a) death (b) merger(c) insolvency(d) unauthorized alteration of the terms of a written agreement, and (e) rights and liabilities becoming vested in the same person.

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Discharge of Contract• 6.Discharge by breach of contract:

If a party breaks his obligation which the contract imposes, there takes place breach of contract.

Breach of contract may be, (a) Actual or (b) Anticipatory breach.(1) Actual breach of contract may occur, (a) at the time when the performance is due, or (b) during the performance of the contract.(2)Anticipatory breach of contract occurs when a party

repudiates his liability or obligation under the contract before the time for performance arrives.

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Remedies for Breach of Contract

• In case of breach of contract, the injured party has one or more of the following remedies:

1.Suit for RESCISSION: Rescission is the revocation of contract. When there is breach of a contract by a party , the injured party may sue to treat the contract as rescinded. He is also absolved of all the obligations under the contract.

2.Suit for DAMAGES: Damages are monetary compensation awarded to the injured party by Court for the loss or injury suffered by him.

The foundation for modern law of damages, both in India and England, is to be found in the case of Hadley vs. Baxandile .

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2.Hadley vs.Baxandile(1854)• X’s mill was stopped by the breakdown of a 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 make known to Y that 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 would have been the case had there been no breach of the contract of carriage).

• Held, Y was not liable for loss of profits during the period of delay as the circumstances communicated to Y did not show that a delay in the delivery of the shaft would entail loss of profits to the mill.

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2.Damages may be of four types:

• (1) Ordinary Damages: These are damages which actually arise in the usual course of things from the breach of a contract.

• (2) Special Damages: Damages which arise from unusual circumstance known to both the parties to the contract are called special damages.

Damages which may reasonably be supposed to have been in the contemplation of both the parties at the time when they made the contract as the probable result of the breach of it, are known as special damages and may be recovered.

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…..Damages may be of four types:

• 3.Vindictive or Exemplary or Punitive Damages: These damages are allowed in case of the breach of a contract to marry or dishonor of a cheque by a banker wrongfully.

• 4.Nominal Damages: Where the injured party has not suffered any loss by reason of the breach of a contract, the Court may award a very nominal sum as damages.

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3.Suit upon QUANTUM MERUIT:[As much as earned]

A right to sue on a quantum meruit (as much as earned) arises where a contract, partly performed by one party, has become discharged by the breach of the contract by the other party.

This right is founded on the implied promise by the other party arising from the acceptance of a benefit by that party.

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Liquidated Damages and penalty.

• ‘Liquidated damages’ represent a sum, fixed or ascertained by the parties in the contract, which is a fair and genuine pre estimate of the probable loss that might ensue as a result of breach. A ‘penalty’ is a sum named in the contract at the time of it’s formation, which is disproportionate to the damage likely to accrue as a result of breach the Courts in India allow only ‘reasonable compensation’.

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4.Suit for Specific Performance

• 4.Specific Performance :In certain cases the Court may direct the party in terms of the contract to actually carry out the promise, exactly according to the terms of the contract. This is called “specific performance of the contract”.

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Injunction

• Injunction: It is a mode of securing the specific performance of the negative terms of a contract.(i.e., where he is doing something which he promised not to do).

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Thank you…..