Discharge of contract

Discharge of contract - Transcript

LEGAL ASPECTS OF BUSINESS Discharge Of Contract

Institute Of Management Technology Ghaziabad
Submitted By IMT P T 2008 11 Term III Group 8
Ravi Shekhar Agrawal 08EM 035 Deepanker Agarwal 08EM 014 Prabhjyot Singh 08EM 030 Sushan Rungta 08EM 048 Sumit Agarwal 08EM 045 Nilesh Baid 08EM 024

Topics Coverage


Definition Modes of Discharge Of Contract Six Modes Remedies for Breach Of Contract Five Remedies Real Life Cases

Discharge Of Contract Definition


A contract is discharged when rights and obligations created by it comes to an end Contracting parties no more have any responsibility or liability to each other



Modes of Discharge Of Contract


By Performance When Promised Performance becomes Impossible Mutual Agreement Lapse of Time Operation of Law Breach of Contract











Discharge Of Contract By Performance


This is the obvious mode of discharge of contract Parties have done whatever was contemplated considered under the contract



Eg A contracts to sell his car to B for Rs 2 Lacks as soon as the car is delivered to B and B pays the agreed price for it the contract comes to an and by performance

Discharge Of Contract By Tender of Performance


Tender is not actual performance but is only an offer to perform obligation under the contract The tender has the same effect as performance Where contract requires payment of money by one party to the right person within the required time in legal tender



Tender of Performance Examples
Eg 1 Duty of debtor to seek out the creditor at their place of business unless otherwise agreed Eg 2 Payment by cheque provides a conditional discharge until cheque is honored
NOTE If a promisor tenders performance of his promise but the other party refuses to accept this discharges the obligation

Discharge Of Contract By Mutual Agreement


By novation alteration or recession Sec 62 remission or waiver Sec 63 If the parties to a contract agree to substitute a new contract for it or to rescind or alter it the original contract need not be performed it is discharged There are six ways





Mutual Agreement Novation


Substitution of new contract for the original one Between the same or different parties Requires consent of all the parties including the new one if any Discharge of old contract is considered sufficient consideration for the new one Novation must take place before the expiry of the original contract

Eg A owes money to B B to C if B agrees that A pays to C the original contract is discharged

Mutual Agreement Rescission Sec 62


Cancellation of all or some of the terms of the contract Requires mutual consent of all the parties



Eg A promises to supply certain goods to B six months after date By that time the goods go out of fashion A and B may rescind the contract

Mutual Agreement Alteration


If the parties mutually are to change the certain terms of the contract it effects to terminate the original contract and new contract is signed

Eg A enters into a contract with B for the supply of 100 bottles later asks to supply 200 bottles This is alteration of contract

Mutual Agreement Remission Sec 62


It is acceptance of a lesser sum than what was contracted for or a lesser fulfillment of promise made

Eg A owes B Rs 5000 A pays to B Rs 4500 who accepts in satisfaction This discharges the whole claim

Mutual Agreement Waiver


Waiver takes place when the parties to a contract agree that they shall no longer be bound by the contract This amount to a mutual abandonment of rights by the parties to the contract



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

Mutual Agreement Merger


Merger takes place when an inferior right accruing to a party under a contract merges into a superior right accruing to the same party under the same or some other contract

Eg P holds a property under a lease He later buys the property His right as a lessee merge into his right as an owner

Discharge Of Contract By Impossibility Of Performance


Impossibility may be inherent in the transaction contract

Eg A promised to pay Rs 50000 to B if he rides

on a horse to the moon



Impossibility may emerge later due to change of other circumstances Sec 56

Eg A law changes Ban of plastic in Delhi

contracts made earlier to that becomes void

Discharge Of Contract By Impossibility Of Performance


Impossibility may be inherent in the transaction contract

Eg A promised to pay Rs 50000 to B if he rides

on a horse to the moon



Impossibility may emerge later due to change of other circumstances Sec 56

Eg A law changes Ban of plastic in Delhi

contracts made earlier to that becomes void

Subsequent or Supervening Impossibility Sec 56


Doctrine of Frustration Sec 56 An agreement to do an act impossible in itself is void When an act becomes impossible or unlawful after the contract is made the contract becomes void





Circumstances of Supervening Impossibility


Destruction of the subject matter of the contract without any fault of promise

Eg A music hall promised to be built out on a certain date got destroyed by fire


Eg ban of plastic in Delhi contracts made earlier to that becomes void

Subsequent illegality the performance of contract becomes unlawful

Circumstances of Supervening Impossibility contd


By death or disablement of the parties When the performance of the contract must be executed personally by the promissory

Eg 1 A contract to act in a theatre for six months in

consideration for a sum of money paid in adv by B A dies

Eg 2 A borrows a sum of Rs 5000 from B to be paid by a certain date A dies before due date Now A s legal representatives are liable to pay the amount due

Circumstances of Supervening Impossibility contd


Declaration of war If war is declared between two countries subsequent to the making of the contract the parties would no longer be obligated to perform the act of contract Non existence or non occurrence of a particular state of things When certain things necessary for performance cease to exist the contract becomes void



Discharge of a contract By Operation of Law


A contract may be discharged independently of the wishes of the parties by the operation of law Four ways Death Cases involving personal skill or ability the contract is terminated by death of the promisor Insolvency If a person not able to pay debts generally as they become adjudged he is discharged from all liabilities incurred prior to his adjudication



Discharge of a contract By Operation of Law contd


Merger When between the same parties a new contract is entered into and a security of a higher degree is taken the previous contract merges in the higher security

Eg A right of action on an ordinary debt would

be merged in the right of suing on a mortgage for the same debt



By the unauthorized alteration of terms of a written document If any of the parties alters any of the terms of the contract without knowledge of the consent of the other party then the contract terminates

Discharge of a contract By Lapse of Time Sec 55


The limitation act 1963 lays down that a contract should be performed within a specific period called period of limitation If it is not performed and if no action is taken by the promisee within the period of limitation he is deprived of his remedy at law



Eg Goods sold on credit The price of goods sold should be paid within three years of the delivery of the goods Say the price is not paid The creditor does not file a suit against the buyer for the recovery of price within three years Now the debt becomes time barred and hence irrecoverable

Discharge of Contacts By Breach


Breach of contract is failure of a party to perform his obligations under a contract without any legal excuse



When one party commits a breach the aggrieved party becomes entitled to rescind void the contract and to claim damages if any

Breach of Contract Types


The breach of contract may be


Actual breach of contract or Anticipatory or constructive breach of contract also breach by repudiation



Actual breach of contract


Where one party fails to perform his contractual obligations on due date of performance

Eg A agrees to deliver to B 5 bags of wheat on

1st January He does not deliver the wheat on that day there is a breach of contract

Actual breach of contract contd


Where one party fails to perform his contractual obligations during the performance

Eg A contracted with a railway company to

supply it certain quantity of railway chairs at a certain price The delivery was to be made in installments After a few installment has been made the railway company asked to deliver no more
If the performance is not strictly according to the terms of the contract



Anticipatory breach of contract


Express repudiation refusal When a party refuses the performance of the contract the other party can treat the contract as no longer binding on him and sue for breach of contract

Eg A contracts to supply B with certain articles on first of August On 28th July he informs B that he will not be able to supply the goods B is entitled to sue A for breach of promise

Anticipatory breach of contract contd


Implied repudiation When impossibility is created by the act of a party to the contract A promised to assign to B within seven years from the date of his promise all his interest in a lease for the sum of 140 Before the end of seven years he assigned his interest to another person Held this was an anticipatory breach of contract by implied repudiation

Anticipatory breach of contract contd NOTE The anticipatory breach of contract does not by itself discharges the contract The contract is discharged when the offended party accepts the repudiation elects to make the contract void


Remedies for breach of contract




In law there is a say that where there is a right there is a remedy A remedy is the means given by law for the enforcement of a right When a contract is broken the injured party has one or more of the following remedies When a contract is broken the injured party has one or more of the following remedies more of the following remedies

Remedies for breach of contract Rescission Relieve him from all contractual obligations due to cancellation of the contract Eg A promises B to supply 10 bags of cement on a certain day B agrees to pay the price after the receipt of the goods A does not supply the goods B is discharged from liability to pay the price


Remedies for breach of contract Damage Sec 75 Damages are a monetary compensation allowed to the injured party by the court for the loss or injured suffered by him by the breach of contract Section 73 to 75 incorporate the provisions in this regard


Damage Ordinary Damages


These damages are those which naturally arise in the usual course of things form such breach E g The difference between the contract price and the market price at the date of breach If the seller retain the goods after the breach he can t recover from the buyer any further loss if the market falls nor he is liable to have the damages reduced if the market rises



Damage Special Damage
These damages are claimed in case of loss of profit etc Liquidated Damages and Penalty Eg If a contract includes a provision that on a breach of contract damages of a certain amount or calculable at a certain rate will be payable the courts will normally accept the relevant figure as a measure of damages


Damage Special Damage Case I


Hadley vs Baxendale 1854 9 Exch 341

Hadley mills was stopped due to the breakdown of a shaft He delivered the shaft to Baxendale a common carrier to be taken to a manufacturer to copy it and make a new one Hadley did not make known to Baxendale that delay would result in a loss of profit By some neglect on the part of Baxendale the delivery of the shaft was delayed As a result the mill remained idle for a longer time and result in loss of profit Now Baxendale was not liable for loss of profits during the period of delay as the circumstances communicated to Baxendale did not show that a delay in the delivery of the shaft would entail loss of profits to the mill

Damage Vindictive or Punitive Damages


For these damages the defendant is punished by the court of law

Damage Nominal Damage Occurs where there is only technical violation of the legal right but no substantial loss is caused thereby The damage granted in such cases are very small Eg a rupee The small amount is awarded as a matter of course


Remedies for breach of contract Specific Performance
Where damages are not an adequate remedy the court may direct the party in breach to carry out his promise according to the term of the contract Eg A contract for a sale of particular house for which monetary compensation is not enough because the injured party will not be able to get an exact substitute in the market


Remedies for breach of contract Injuction


An injunction is an order of the court requiring a person to perform a negative obligation Two types


Prohibitory injunction which is an order that something must not be done Mandatory injunction which is an order that something must be done for example to pull down a wall which has been erected in breach of contract

Injuction Case II


Warner Bros v Nelson 1937 1 KB 209
to act for the plaintiff and at the same time not to act or sing for anybody else for two years without the plaintiff s written consent no other employment could be taken up during this period without the plaintiff s consent

The defendant an actress agreed


It was held that the defendant could be restrained by injunction from breaking the second undertaking She would not be forced to act for the plaintiff because she could earn a living by doing other work

Remedies for breach of contract By Way of Suit






Also Suit on Quantum Meruit as much as is earned This is a remedy supplementary to the damages and the legal meaning of the term is payment in proportion of the work done Restitution is an act of restoring back to the rightful owner which has been taken away or lost

CASES


Damage Special Damage Case I
Hadley vs Baxendale 1854 9 Exch 341

Remedies for breach of contract Injuction




LALA KAPURCHAND V HIMAYATALI KHAN A I R 1963 Anticipatory breach of contract


Warner Bros v Nelson 1937 1 KB 209

sooltan chand v schiller 1878 4 cal 252

Case 3




Remission of performance LALA KAPURCHAND V HIMAYATALI KHAN A I R 1963 B has executed a promissory note in favor of A a was offered a sum of Rs 20 lacs in full satisfaction of the claim of Rs 27 lacs under the aforesaid promissory note It was made clear to A that unless he recorded full satisfaction payment would not be made to him After some initial protests A agreed to accept the sum of Rs 20 lacs in full satisfaction of his claim and duly discharged the promissory note indicating full satisfaction of his claim A then sued B to recover the balance of Rs 7 lacs It was held that the case was completely covered by section 63 and A having accepted the payment in full satisfaction of his claim was not entitled to sue B for the balance

CASE 4


Anticipatory breach of contract
sooltan chand v schiller 1878 4 cal 252 the defendant agreed to supply to the plaintiff 200 tons of linseed oil at a certain price in april and may to be paid for one delivery The defendants made certain deliveries and received part payment of Rs 1000 The balance was with held by the plaintiff for adjustment of their claims The defendant declined to accept their claim and refused to make further delivery It was held that the withholding of a part payment under a bonafide claim cannot be regarded as a refusal to perform the contract Therefore the defendant were not justified in rescinding the contract

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