This article has been written by Gayatri Priya pursuing Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution.
This article has been published by Sneha Mahawar.
Table of Contents
Introduction
Discharge of contract under the Indian Contract Act, 1872 means when the party to the contract fulfills their obligations, the contract is to be executed. It implies termination of the contractual obligation. The discharge of contract means that the obligations of the contract come to an end, when the discharge of course all duties which arose under the contract are terminated. Let us take for example, person X owes Rs 500,000 to person Y and agrees to repay the same within one year. The debt owed is documented by the parties by means of a contract. Subsequently, person X encountered an unfortunate event that resulted in him losing a job and thereby asking to settle the final amount at Rs 100,000. Person Y accepted the same and thereby the contract between them had come into effect. This article discusses the aspect of discharge of contract by means of breach of contract.
What is a breach of contract
Contracts impose a set of performance obligations on all parties to the agreement. Failure to comply with these requirements of a contract without legal excuse is called a breach of the contract. Breach of contract is also the name of a civil cause of action pursued in court against the breaching party.
If a party to a contract does not perform his obligations or expressly refuses to perform the contract, it is called a breach of contract. In the case of breach of contract, the party who does not or refuses to perform his obligations is called the defaulting party. Whereas the other is called an aggrieved party.
Examples for breach of contract-
- The failure of a party to make payments as required by the contract: A tenant stops paying the rent.
- The failure to perform a task or the alleged timeliness of performance: A painter starts painting in an office building, but does not finish the job by the agreed-upon completion date.
Various modes of discharge of contract
- Discharge of contract by performance: Discharge by means of person involves the obligation of a party coming to an end, at the time he performs his promise. The contract completely comes to an end by means of performance of respective obligations by all the parties. This is termed to be the normal and natural mode of discharging a contract.
- Discharge of contract by mutual consent or agreement: When every party involved in an agreement by mutually consenting to discharge the contract they have entered into, cancels the same or alters its terms or enters into a new agreement substituted for it, the same is said to be discharge of contract by mutual consent.
- Discharge of contract by the impossibility of performance: Discharge of contract by the impossibility of performing a laid down task in the contract with reasons for the same being death, illness, or a reason caused by the other party, is termed to be discharge of contract by the impossibility of performance.
- Discharge of contract by lapse of time: If the promisor fails to perform and the promisee fails to take action in regards to such failed action, then the latter fails to seek remedy by means of statutory promises. Thus the contract gets discharged because of a lapse of time.
- Discharge of contract by the operation of law: The contract is said to be discharged by the legal operation when the contractual duties of the parties come to an end due to legal involvement. The term operation of law can be simplified to mean legal components that are given automatically.
Section 39 of the Indian Contract Act, 1872 states that if a party to the contract without a valid or unlawful reason, refuses to perform his obligations under the contract, the other party has the right to repudiate the contract.
Discharge by breach of contract
There are two types of breach, namely,
- Actual breach: If a party fails to perform his obligations under the contract in the stipulated time or refuses to perform such obligation, then such breach of contract is called as actual Breach.
Example- Vinod promises to deliver flowers to Dheeraj. On the 19th of April, the appointment day, he refuses to deliver the flowers. In this case, it is an actual breach.
- Anticipatory breach/ constructive breach: If a party to a contract, before the stipulated time of his performance, by word or mouth or by behaviour makes known or his intention, not to perform the promise. It is deemed to be an anticipatory or constructive breach of the contract.
Example- If Vinod informs Dheeraj before 19th of April, his intention not to deliver the flowers and sells the flowers to Trishul before that date it will be a case of anticipatory or constructive breach of contract on the part of Vinod.
In a situation of anticipatory or constructive breach of the contract, the aggrieved party has the right to
- Assume the anticipatory breach to be an actual breach of contract and sue for breach of promise or
- Not to assume the anticipatory breach to be an actual breach and wait for the performance of the contract on the stipulated date, and sue for breach of promise if the promisor fails to perform
Remedies available in discharge by breach of contract to the aggrieved party
- Cancellation/Exoneration/Rescission
- Claim for Quantum meruit
- Claim for injunction
- Claim for Restitution
- Claim for specific performance
- Claim for damages.
- (1) cancellation/exoneration/recession: When one party commits a breach of contract, the aggrieved party can assume that the contract is terminated and resend the contract, and is exempted from the further performance
Example- Suresh makes a contract to sell certain goods to Rajesh for Rs.15,000 and Rajesh promises to make the payment on the delivery of the goods
If Suresh refuses to deliver the goods at the promised time Rajesh can assure the contract is terminated. In this case, he is freed from his commitment to pay the amount of Rs.15,000.
Exceptions: where the aggrieved party cannot rescind the contract
i. When the aggrieved party who wants to cancel, the contract has given his express or tacit confirmation to the contract.
ii. When the contract is in a state of change with the entrance of a third party, and a third party has, lawfully in good faith, acquired the right of performance of the whole or part of the contract so the aggrieved party cannot be exonerated
iii. When the contract is not divisible, the aggrieved party cannot rescind one part of the contract.
iv. When without the fault of the parties to the contract, the circumstances change and it is no more possible for the parties to go back to the old state. The aggrieved party cannot be exonerated from the performance.
- (2) Claim for Quantum meruit: Quantum Meruit literally means “as much as earned“. When one party at the request of another party does something or supply some goods to the other party and the compensation of such goods or services has not been decided the time of the contract then the law decides what should be adequate compensation for such goods or services, is called as Quantum meruit
How much or what would be the compensation depends upon the circumstances of the case of;
Example- A promises to construct a house for B for Rs.1,00,00. After A has started the construction, but before its completion, B abrogates the contract and stops A from work in such a situation. A can sue for adequate compensation for the work that he has already been done, and also sue for damages.
Essentials for the law of quantum meruit to be operative –
i. It is necessary for the contract to be divisible in the sense that it is possible to estimate the value of the path that has been executed.
ii. It is also essential that the contract is not abrogated by the party, making the demand for compensation.
Example- A is in a contract to write a book for a publisher. After writing two chapters, he refuses to complete the book in this case. A cannot claim to be paid for the two chapters he has written.
- (3) Claim for an injunction: It is a negative order given by the court that restrains a party from doing something
In the case of Warner Bros. vs Nelson (1937), a film actress agreed to act exclusively for Warner Bros for a year and for no other producer. During the year she contracted to act for another producer. It was held that she could be restrained by injection for doing so.
- (4) Claim for restitution: Section 65 provides that when a contract becomes void, Any person who has received any advantage under such contract, is bound to restore it or make compensation for it to the other person from whom he received it.
Application of claim of restitution- This section applies to contracts that become void. It does not apply to contracts which are known to be void ab initio.
Example- If Rajesh pays Rs.200 to Suresh to beat Dixit, the money is not recoverable as the contract is void ab initio.
- (5) Claim for specific performance: when in the case of a breach of contract, damages or not deemed to be adequate remedy, the aggrieved party can sue the party in breach to carry out his promise. This is a direction by the court for specific performance of the contract at the suit of the aggrieved party.
Example- A agreed to deliver goods to B, On 21st of August 2023.
But backed out to deliver the goods due to which, A will face a huge loss and also would lose an important client. A can appeal to the court for specific performance of the contract specific performance shall not be granted in the following cases:
i) When it relates to personal skill.
ii) Where continuous supervision from the court is required.
iii) When he was ready to perform earlier, but the other party was not ready.
iv) Such an act has a strict ban from law to perform ( eg- lunatic ,insolvent).
-(6) Claim for damages: Damages or a monetary compensation allowed to the aggrieved party by law for the loss or injury suffered by him for the breach of contract . The purpose here is to help the party who has suffered a loss to retain the position. It had before the loss was imposed upon the party by the breach of contract.
Example- Suresh promises to deliver hundred cycle tyres at Rs.50 each to Mahesh on 1 May 2020, but does not perform his promise on that date . In such circumstances, if the price of the tire on 1st May is Rs.55 per the tyre , then Mahesh is entitled to claim damages at Rs.5 per tyre from Suresh and can sue for damages.
Kinds of damages
- Compensatory damages:
i) General damages- When a contract is broken, the nature and direct loss suffered by the aggrieved party is called as general damage.
ii) Special damages- A loss that arises out of special circumstances, prevailing at the time of breach of contract is called a special damages.
iii) Punitive damages- This kind of damages deals with mentary compensation and is generally provided in cases involving grave disappointment, mental agony, for example sexual harassment.
- Nominal damages:
When the aggrieved party has not in fact suffered any loss by reason of the breach of contract, the damage recoverable by him is nominal i.e very small but wants to teach a lesson.
Conclusion
As we come to the end of the article, we can understand that discharge of contract refers to the end of a contractual relationship with the obligations duties fulfilled by the parties in the contract. In this case the discharge of contract of cause due to the breach done by the defaulting party and there are various is available to the aggrieved party. The defaulter can be sued for breach of damages, injunction, quantum meruit or specific performance. Also, there are various modes of discharging a contract but the best way to do it is by performing the promise within the stipulated time and as stated in the contract by the parties to avoid unpleasant ways.
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