Performance of Contracts to students.pptx

Performance and
Discharge of Contract
Legal Aspects of Business

What is Performance of
contract?
Performance of contract means that both the
parties - promisor and the promisee - have fulfilled
their respective obligations, which the contract
placed upon them.
A visits a stationery shop to buy a calculator. The
seller delivers the instrument and A pays the price.
The contract is said to have discharged by mutual
performance.

Essentials of a Valid Tender
To be a valid tender or offer of performance, it must fulfil the following
conditions:
(i) It must be unconditional [Section 38(1)].
(ii) It must be made at a proper time and place [Section 38(2)].
(iii) It must be made under such circumstances that the person to
whom it is made may have a reasonable opportunity of ascertaining that
the person by whom it is made is able and willing, and then do the
whole of what he is bound by his promise to do [Section 38(2)].
(iv) If the offer is to deliver anything to the promisee, the promisee
must have a reasonable opportunity of seeing that the thing offered is
the thing that the promisor is bound to deliver. [S38(3)]

By Whom can Contracts be
Performed?

Performance by Joint Promisor
Continued…

Time and Place for Performance?

Without application by Promisee

Performance as prescribed by Promisee

Performance of Reciprocal Promises

Continued…

Discharge by Agreement
Discharge by agreement may arise in the following ways.
• Substitution of a new contract for
the original one.
Novation
• Cancellation of all or some of the
material terms of the contract.
Rescission
• Acceptance of a lesser sum than
what was contracted for, or a lesser
fulfilment of the promise made.
Remission
• Abandonment or relinquishment of
a right under a contract.
Waiver
Continued…

Continued…

Accord and Satisfaction
Accord: A settlement agreed upon between the parties
in a lawsuit for something other than what is claimed
to be due, and which bars subsequent actions on the
claim.
Is an executory contract to perform an act that will
satisfy an existing duty. An accord suspends, but does
not discharge the original contract.
Satisfaction: the performance of the accord, which
discharges the original contractual obligation.

Remedies for Breach of Contract

Breach of Contract and Remedies
Rescission
Damages
Specific Performance
Injunction
Quantum Meruit
Quasi-contract : Other Remedies
Learning Objectives

What is Breach of Contract
A breach of contract is refusal by one party to abide by its terms, without lawful
excuses such as, impossibility of performance, defective or even late
performance by the other party etc.
Many commercial agreements contain express provisions for remedies available
to the aggrieved party. For example, in a contract for the sale of goods, the
buyer may be entitled to ask the seller to make good or replace defective items.
By incorporating such a clause, the contracting parties, perhaps, intended to
displace any rights and remedies provided by law, which are not specified in the
contract.
Continued…

Types of Damages
Depending upon the nature of the awards in compensating the injured
or aggrieved party, damages have been classified as follows:
1. Compensatory damages / Ordinary / General
2. Nominal damages
3. Consequential damages / Sequential
4. Punitive damages / Exemplary / Vindictive
5. Liquidated damages and Penalty
Continued…

1. Compensatory Damages
Damages compensating the non-breaching party for the loss in the bargain are known as
compensatory damages. These are also called ordinary damages. Since these damages
compensate the aggrieved party for injuries actually sustained and proved to have arisen
directly from the loss in the bargain due to the breach, the measure of ordinary damages is
the difference between the contract price and the market price on the date of the breach.
Accordingly, they simply replace the loss caused by the wrong or injury. The aim of
awarding compensatory damages is thus to protect the claimant’s ‘expectation of interest’
or his ‘performance interest’.
A contracts to sell and deliver 50 kgs. of saltpetre to B, at a certain price to be paid on
delivery. A breaks his promise. B is entitled to receive from A, by way of compensation, the
sum, if any, by which the contract price falls short of the price for which B might have
obtained 50 kgs. of saltpetre of the same quality at the time when the saltpetre ought to
have been delivered.

2. Nominal Damages
Nominal damages are awarded in cases where the aggrieved
party has suffered no loss as a result of the other's breach.
When a seller fails to deliver the goods, but the buyer is able
to purchase elsewhere at no extra cost.
An award of a small sum such as Rs 100 is granted to the non-
breaching party to reflect the view that any loss or damage is
purely technical.

3. Consequential Damages
Consequential damages are also called special damages. These are awarded as monetary
compensation for loss suffered as a consequence of the other party's breach.
Consequential damage occurs because of some special or unusual circumstances of the
particular contractual relationship of the parties.
However, an aggrieved party cannot recover special damages for loss that he could have
avoided by taking reasonable steps. This is sometimes expressed as the duty to mitigate
(or minimize) these damages.
A, having contracted with B to supply B with 1,000 tons of iron at ₹100 a ton, to be
delivered at a stated time, contracts with C for the purchase of 1,000 tons of iron at
₹80 rupees a ton, telling C that he does so for the purpose of performing his contract with
B. C fails to perform his contract with A, and B, in turn, rescinds the contract. C will have to
pay to A ₹20,000, that being the profit which A would have made by fulfilling his contract
with B.

4. Punitive Damages
Also known as exemplary or vindictive damages, punitive damages are
available in a breach of contract very rarely. These are imposed not with an idea to
compensate the injured or aggrieved party but to punish the wrongdoer so as to
deter future such misconduct.
They reflect the court’s strong disapproval of a defendant’s predominantly
reprehensible behaviour.
Oppressive, arbitrary, or unconstitutional action by the servants of the
insurance and healthcare undertakings are usually the most frequent targets to
recover punitive damages, followed by employers and bankers who are often
subjected to punitive damages.
In case of wrongful dishonour of a cheque (due to the negligence on part
of the banker), the governing rule is – smaller the amount of the cheque, larger will
be the amount of damages awarded and vice versa.

5. Liquidated Damages and Penalty
It is common for the contracting parties to expressly state in the contract that a
certain sum of money will be paid to the injured party or that goods will be forfeited (the
latter being known as retention clause) should a breach of contract occur. Clauses
covering these areas are known as liquidated or agreed damages clauses. These are self-
help remedies and generally appear in commercial
The purpose of such clauses is to make recovery of damages easier, avoiding the
problems of proving actual loss; to avoid arguments as to the remoteness of certain
types of consequential or indirect losses; and to assure the other party of their intention
to be bound by the contract.
On the other hand, a clause will be construed as a penalty clause if the sum specified is
extravagant and disproportionate to the damage likely to occur. Penalty clauses are
generally not enforceable, whereas liquidated damages clauses are.
Continued…

Liquidated or Agreed Damages and Penalty
Whether a particular sum is liquidated damages or a penalty depends on the
intentions of the parties. And the mere use of the words ‘penalty’ or
‘liquidated’ damages are not conclusive evidence of intentions. It is necessary
to examine whether the amount specified is befitting penalty or liquidated
damages. The courts normally seek to determine whether the sum stipulated is
extravagant in comparison with the greatest loss, which could have followed
from the breach? If so it is a penalty. Otherwise the same will represent
liquidated damages. Thus, as a general rule, if the sum specified in the
contract, is a genuine pre estimate of loss it is termed liquidated damages, and
if it bears no reflection on the loss suffered, it is termed a penalty.

Damages: A Claim for Damages raises the Following
Issues
Remoteness of damage, which means for what kind of damage
should the plaintiff, be compensated? That is, whether the
courts will take the step of recognizing that a breach of contract
can, in principle, give rise to a claim for damages to the injured
party.
Assessment of damages, which means what monetary
compensation or damages should the plaintiff receive in respect
of the damage, which is not too remote or indirect?

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