DISCHARGE OF CONTRACT, Assignments of Law

Download DISCHARGE OF CONTRACT and more Assignments Law in PDF only on Docsity! A contract is said to be discharged when the object or obligations is fulfilled, the liability of either party under the contract comes to an end. In other words discharge of contract means “termination of the contractual relationship between the parties”. This is why the rights and duties in terms of contractual obligations were set up, when the parties originally entered into the contract. There are various modes of discharge of contract like either in positive way i.e., by performance or in negative way i.e., by breach Discharge of Contract Meaning Discharge of contract means termination of contractual relation between the parties to a contract. Modes of Discharge of Contract The contract may be discharged in the following six modes of discharge of contract discussed as follows: 1. Discharge by performance 2. Discharge by mutual consent or agreement 3. Discharge by impossibility of performance 4. Discharge of a contract by lapse of time 5. Discharge of a contract by operation of law 6. Discharge by breach of contract Discharge by mutual consent or agreement As per Section 62 of the Indian Contract Act, 1872 whose heading is – Effect of novation, rescission, and alteration of contract, “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. The 6 types through which discharge of contract through agreement or consent could take place are:  Novation  Rescission  Alteration  Remission  Waiver  Merger  Accord and satisfaction (a) Novation [Sec 62] – Novation means substitution of a new contract in the place of the original contract new contract entered into in consideration of discharge of the old contract. The new contract may be- (a) Between the same parties (by change in the terms and condition) (b)Between different parties (the term and condition remains same or changed) Following conditions are satisfied :- (1) All the parties must consent to novation (2) The novation must take place before the breach of original contract. (3) The new contract must be valid and enforceable. Example: A owes B Rs.50,000. A enters into an agreements with B and gives B a mortgage of his estate for Rs.40,000 in place of the debt of Rs.50,000. (Between same parties) . A owes money Rs.50,000 to B under a contract. It is agreed between A, B & C that B shall henceforth accept C as his Debtor instead of A for the same amount. Old debt of A is discharged, and a new debt from C to B is contracted. (Among different parties) (b) Rescission [62]:- Rescission means cancellation of the contract by any party or all the parties to a contract. Example; X promises Y to sell and deliver 100 bales of cotton on 1st oct his go down and Y promises to par for goods on 1st Nov. X does not supply the goods. Y may rescind the contract. (c) Alteration [62] :- Alteration means a change in one or more of the terms of a contracts with mutual consent of parties the parties of new contracts remains the same. Example:- Example : A agrees upon a Promissory Note to pay Rs.5,000 to B. B the amount as Rs.50,000. A is liable to pay only Rs.5,000. (d) Merger: When an inferior right accruing to a party in a contract mergers into a superior right accruing to the same party, then the contract conferring inferior right is discharged. Example: A took a land on lease from B. Subsequently, A purchases that land. A becomes owner of the land and ownership rights being superior to rights of a lessee, the earlier contract of lease stands terminated. Discharge of a contract by lapse of time Every contract and promise under the contract should be performed within a time limit. The contract is discharged if it is not performed or enforced within a specified period called the period of limitation. The period of limitation for recovering the debt is 3 years and 12 years for the recovery of immovable property. Discharge by Breach of contract Failure of a party to perform his part of contract (a) Anticipatory Breach of contract :- Anticipatory breach of contract occurs when the part declares his intention of not performing the contract before the performance is due . (i) Express repudiation: - 5 agrees to supply B 100 tunes of specified category of iron on 15.01.2006 on 31.12.2005. 5 express his unwillingness to supply the iron to B. (ii) Party disables himself: - Implied by conduct. Ex.:- 5 agrees to sell his fiat car to B on 15.01.2006 on 31.12.05 5 sells his fiat car to T. (b) Actual Breach of contract :- If party fails or neglects or refuses to perform his obligation on the due date of performance or during performance. It is called as actual breach. During performance – party has performed a part of the contact. Consequences of Breach of contract:- The aggrieved party (i.e. the party not at face it ) is discharged from his obligation and get rights to proceed against the party at fault. The various remedial available to an aggrieved party. Discharge by impossibility of performance Sometimes after a contract has been established, something might occur, though not at the fault of either party, which can render the contract impossible to perform, or illegal, or radically different from that originally undertaken, which leads to discharge of contract. The impossibility of performance may be of two:\ Initial impossibility or Pre-contractual impossibility: It means impossibility exists at the time of making a contract. The initial impossibility may be: (i) Known or (ii) unknown to the parties at the time of making the agreement. As per section 56 of the Indian Contract Act, 1872 “An agreement to do impossible act is void ab-initio.” It means agreement which is obviously impossible cannot be binding Supervening impossibility or Post-contractual impossibility: The contract becomes void on account of the subsequent impossibility only if the following conditions are satisfied: 1. The act should have become impossible after the formation of the contract. 2. The impossibility should have been caused by a reason of some event which was beyond the control of the promissory. 3. The impossibility must not be the result of some act or negligence of the promisor himself. Impossibility which arises subsequent to the formation of a contract ( which could be performed at the time when the contract was entered into ) is called subsequent or supervening impossibility include- a) destruction of the subject-matter of contract; A, let out a music hall to B for a number of concerts on certain days. The hall was destroyed by fire before the date of first concert. The plaintiff sued the defendant for damages. It was held that the contract has become void and the defendant was not liable. b) non-existence or non-occurrence of a particular state of things; e) death or incapacity for personal service; An artist undertook to perform at a concert for a certain price, but before he could do so, he met with an accident and lost his right arm. Held the artist was discharged due to disablement. d) change of law or stepping in of a person with statutory authority; Example: A sold to B 100 bags of wheat at Rs.150 per bag. But before delivery the government banned the sale and purchase of wheat by private traders. The contract was discharged by subsequent change in law e) outbreak of war. The contract is discharged in these case. A contracts to take in cargo for B at a foreign port. A’s Govt. afterwards declared war against the country in which the port is situated. The contract becomes void. 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, lockouts and civil disturbances; e) failure of one of the objects. The contract is not discharged in these cases. Conclusion It is concluded that Discharge of contract is referred when, there is a need to put an end to a contract like two parties Y and Z make a contract to build a fly-over in the Example: Company A delivered the wrong kind of furniture to Company B. After discovering the mistake later in the day, Company B insisted that Company A pick up the wrong furniture and deliver the right furniture. Company A refused to pick up the furniture and said that it could not supply the right furniture because it was not in stock. Company B successfully sued for breach of contract. The general damages for this breach could include: • refund of any amount Company B had prepaid for the furniture; plus • reimbursement of any expense Company B incurred in sending the furniture back to Company A; plus • payment for any increase in the cost Company B incurred in buying the right furniture, or its nearest equivalent, from another seller. B. Special Damages. Special damages (also called “consequential damages”) cover any loss incurred by the breach of contract because of special circumstances or conditions that are not ordinarily predictable. These are actual losses caused by the breach, but not in a direct and immediate way. To obtain damages for this type of loss, the nonbreaching party must prove that the breaching party knew of the special circumstances or requirements at the time the contract was made. Example: In the scenario above, if Company A knew that Company B needed the new furniture on a particular day because its old furniture was going to be carted away the night before, the damages for breach of contract could include all of the damages awarded in the scenario above, plus: • payment for Company B’s expense in renting furniture until the right furniture arrived. 2. Punitive Damages. Punitive damages (also called “exemplary damages”) are awarded to punish or make an example of a wrongdoer who has acted willfully, maliciously or fraudulently. Unlike compensatory damages that are intended to cover actual loss, punitive damages are intended to punish the wrongdoer for egregious behavior and to deter others from acting in a similar manner. Punitive damages are awarded in addition to compensatory damages. Punitive damages are rarely awarded for breach of contract. They arise more often in tort cases, to punish deliberate or reckless misconduct that results in personal harm. Nominal damages- Where party suffers no loss, the court may allow nominal damages simply to establish that party has proved his case and won. Nominal damage is very small in amount. Damages for inconvenience- If party has suffered physical inconvenience, discomfort for mental agony as result of breach of contract, party can recover the damage for such inconvenience. Example: A photographer agreed to take photographs at a wedding ceremony but failed to do so. The bride brought an action for the breach of contract. Held, she was entitled to damages for her injured feelings. (3) Suit upon Quantum Meruit : The phrase 'Quantum Meruit' means "as much as earned". In other words, it means that the other party who has received the services is unjustly benefited and must return it to the party who provided such benefit. For example, ‘S’ is the daughter and ‘M’ is the father. They entered into an agreement where ‘M’ asked ‘S’ to provide medical care for him while he was sick. In return, ‘M’ agreed not to write a will and agreed to give his estate to ‘S’ after he dies with an intent to give her a fair portion for the services rendered. However, ‘M’ soon died, leaving all of the estates for his brother and nothing for ‘S’. Here ‘M’ was unjustly enriched as he received the services but in return ‘S’ received nothing. In this example, ‘S’ seeks to recover a portion of “M’s” estate by claiming the remedy of quantum meruit. (4) Suit for Specific Performance : "Specific performance" means actual carrying out of the promise. In certain cases, the Court may direct the party in breach of contract for the actual carrying out of the promise, exactly according to the terms of the contract. This is called specific performance of the contract. Injunction An injunction is basically like a decree for specific performance but for a negative contract. An injunction is a court order restraining a person from doing a particular act. So a court may grant an injunction to stop a party of a contract from doing something he promised not to do. In a prohibitory injunction, the court stops the commission of an act and in a mandatory injunction, it will stop the continuance of an act that is unlawful. Example: Film actress agreed to act exclusively for W for a year and for no one else. During the year she contracted to act for Z. Conclusion A contract is an agreement or promise made between two or more parties that the courts will enforce. In some cases, the agreements and promises made in a contract are not kept by a party or more parties. Therefore, this situation called breach of contract which means failure to keep the promises or agreements of a contract. Breach of contract is a legal cause of action in which a binding agreement is not honored by one or another more of the parties. There can be a variety of reasons for breaching a contract and the consequences of such a breach can be very serious, even if the breach was unavoidable. When a breach of contract happens, the parties who involved should find out the remedies and consequences of breaching an enforceable contract. There are main three remedies which are suit for specific performance, liquidated damages and injunction. The first remedy is suit for specific performance which means compelling the parties to perform exactly what they had agreed in the agreement. While the second remedy is liquidated damages which means call for a specific penalty if the contract terms are not completed on an agreed-upon date, such as penalty payments or repair costs, medical expenses, car rentals and loss of wages. The third remedy is injunction which means stop something from being done. These three main remedies are important when we are dealing with the breach of contract.