CSEET Free Notes - Legal Aptitude - Contract Act - Part 3 - Deep Gyan®
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CSEET Free Notes – Legal Aptitude – Contract Act – Part 3

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Topics covered in this article

  • DISCHARGE OR TERMINATION OF CONTRACTS
    • Discharge by Impossibility or Frustration (Section 56)
      • Supervening Impossibility
      • Discharge by Supervening Illegality
    • Discharge by Breach
      • Anticipatory Breach of Contract
  • Remedies for Breach of Contract
    • Rescission of contract
    • Liquidated and Unliquidated damages
    • General or Ordinary damages
    • Special Damages
    • Exemplary Damages
    • Nominal Damages
  • Quantum Meruit

DISCHARGE OR TERMINATION OF CONTRACTS

Contracts may be discharged or terminated by any of the following modes:

  1. performance, i.e., by fulfilment of the duties undertaken by parties or, by tender;
  2. mutual consent or agreement.
  3. lapse of time;
  4. operation of law;
  5. impossibility of performance; and
  6. breach of contract.

Discharge by Impossibility or Frustration (Section 56)
A contract which is entered into to perform something that is clearly impossible is void. A contract to do an act, which after the contract is made, becomes impossible or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

If the impossibility is not obvious and the promisor alone knows of the impossibility or illegally then existing or the promisor might have known as such after using reasonable diligence, such promisor is bound to compensate the promisee for any loss he may suffer through the non-performance of the promise inspite of the agreement being void ab-initio.

(a) Supervening Impossibility
A contract will be discharged by subsequent or supervening impossibility in any of the following ways:

  • Where the subject-matter of the contract is destroyed without the fault of the parties, the contract is discharged.
  • When a contract is entered into on the basis of the continued existence of a certain state of affairs, the contract is discharged if the state of things changes or ceases to exist.
  • Where the personal qualifications of a party is the basis of the contract, the contract is discharged by the death or physical disablement of that party. 

(b) Discharge by Supervening Illegality
A contract which is contrary to law at the time of its formation is void. But if, after the making of the contract, owing to alteration of the law or the act of some person armed with statutory authority the performance of the contract becomes impossible, the contract is discharged. This is so because the performance of the promise is prevented or prohibited by a subsequent change in the law.

Cases in which there is no supervening impossibility
In the following cases contracts are not discharged on the ground of supervening impossibility –

  • Difficulty of performance: The mere fact that performance is more difficult or expensive than the parties anticipated does not discharge the duty to perform.
  • Commercial impossibilities do not discharge the contract. A contract is not discharged merely because expectation of higher profits is not realised.
  • Strikes, lockouts and civil disturbance like riots do not terminate contracts unless there is a clause in the contract providing for non-performance in such cases.

Supervening impossibility or illegality is known as frustration under English Law.

Discharge by Breach
Where the promisor neither performs his contract nor does he tender performance, or where the performance is defective, there is a breach of contract. The breach of contract may be
(i) actual; or
(ii) anticipatory. 

Anticipatory Breach of Contract
Breach of contract may occur, before the time for performance is due. This may happen where one of the parties

  • definitely renounces the contract and shows his intention not to perform it or
  • does some act which makes performance impossible.

The other party, on such a breach being committed, has a right of action for damages.

The other party may

  • either sue for breach of contract immediately after repudiation or
  • wait till the actual date when performance is due and then sue for breach.

If the promisee adopts the latter course, i.e., waits till the date when performance is due, he keeps the contract alive for the benefit of the promisor as well as for his own.

Remedies for Breach of Contract
In case of breach of contract, the injured party may:

  1. Rescind the contract and refuse further performance of the contract;
  2. Sue for damages;
  3. Sue for specific performance;
  4. Sue for an injunction to restrain the breach of a negative term; and
  5. Sue on quantum meruit

Rescission of contract
When a party to a contract has broken the contract, the other party may treat the contract as rescinded and he is absolved from all his obligations under the contract.

Note:

  • According to Section 65, when a party treats the contract as rescinded, he makes himself liable to restore any benefits he has received under the contract to the party from whom such benefits were received.
  • According to Section 64, when a person at whose option a contract is voidable rescinds, the other party thereto need not perform any promise therein contained in which he is the promisor.
  • According to Section 75, if a person rightfully rescinds a contract, he is entitled to a compensation for any damage which he has sustained through the non-fulfilment of the contract by the other party.

Liquidated and Unliquidated damages:

  • Liquidated damages: Where the contracting parties agree in advance the amount payable in the event of breach, the sum payable is called liquidated damages.
  • Unliquidated damages: Where the amount of compensation claimed for a breach of contract is left to be assessed by the Court, damages claimed are called unliquidated damages.

Unliquidated damages may be:

  1. General or ordinary damages,
  2. Special damages
  3. Exemplary or punitive damages, and
  4. Nominal damages

General or Ordinary damages
These are restricted to pecuniary compensation to put the injured party in the position he would have been had the contract been performed. It is the estimated amount of loss actually incurred.

Special Damages
If at the time of entering into the contract, the party has notice of special circumstances which makes special loss the likely result of the breach in the ordinary course of things, then upon breaking the contract and the special loss following this breach, he will be required to make good the special loss.

Exemplary Damages
These damages are awarded to punish the defendant. In two cases the court may award such damages:

  1. breach of promise to marry; and
  2. wrongful dishonour of a customers cheque by the banker

Nominal Damages
Nominal damages consist of a small token award, e.g., a rupee or even 25 paise, where there has been an infringement of contractual rights, but no actual loss has been suffered. These damages are awarded to establish the right to decree for breach of contract.

Quantum Meruit
The expression “Quantum Meruit” literally means “as much as earned” or reasonable remuneration. It is used where a person claims reasonable remuneration for the services rendered by him when there was no express promise to pay the definite remuneration. Thus, the law implies reasonable compensation for the services rendered by a party if there are circumstances showing that these are to be paid for.

Where one party who has performed part of his contract is prevented by the other from completing it, he may sue on a quantum meruit, for the value of what he has done.

 

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