Discharge of contract/Law of Contract/ Business law/MBA/BBA

1. DISCHARGE OF CONTRACT
Prof. Shrinivas V K
Prof. SVK

2. 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)
Prof. SVK

3. …………….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)
Prof. SVK

4. 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.
Prof. SVK

5. 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
Prof. SVK

6. 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.
Prof. SVK

7. 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.
Prof. SVK

8. 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
Prof. SVK

9. …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.
Prof. SVK

10. 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 performance
2.Discharge by agreement or consent
3.Discharge by impossibility
4.Discharge by lapse of time
5.Discharge by operation of law
6.Discharge by breach of contract.
Prof. SVK

11. …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]
Prof. SVK

12. …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.
Prof. SVK

13. ……..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
Prof. SVK

14. Discharge.. of Contract
2.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.
Prof. SVK

15. ……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.
Prof. SVK

16. Discharge.. of Contract
• The law does not recognize what is
impossible; and
• What is impossible does not create
an obligation
Prof. SVK

17. 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.
Prof. SVK

18. Discharge …of Contract
• 3.Discharge by impossibility:
Impossibility of performance may be-
(1) Initial impossibility or
(2) Supervening impossibility.
Prof. SVK

19. 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 voyage
2.Eg., A contracts to marry B, being already married to C
Prof. SVK

20. ……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 war
The contract is discharged in these cases.
Prof. SVK

21. 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.
Prof. SVK

22. …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.
Prof. SVK

23. 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.
Prof. SVK

24. 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 .
Prof. SVK

25. 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.
Prof. SVK

26. 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.
Prof. SVK

27. …..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.
Prof. SVK

28. 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.
Prof. SVK

29. 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’.
Prof. SVK

30. 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”.
Prof. SVK

31. 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).
Prof. SVK

32. Thank you…..
Prof. SVK