Professional Documents
Culture Documents
02
Discharge of Contract
Irwin/McGraw-Hill
10-2
DISCHARGE OF CONTRACT
Discharge
of a contract means parties to the contract are no more liable to the contract. Liabilities of the parties to the contract will come to an end. Ways of discharge of contract When the rights & obligations arising out of a contract are extinguished , the contract is said to be discharged or terminated.
Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 2000
10-3
DISCHARGE OF CONTRACT
A
contract may be discharged by any of the following ways: By performance- actual or attempted( or tender) By mutual consent or agreement By Impossibility of performance; inherent impossibility , subsequent or supervening impossibility or illegality By lapse of time
Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 2000
10-4
DISCHARGE OF CONTRACT
A
contract may be discharged by any of the following ways: By lapse of time By operation of law By breach of contract
Irwin/McGraw-Hill
10-5
DISCHARGE OF CONTRACT
By performance means where the parties have done whatever was contemplated under the contract & contract comes to an end Tender or offer of performance has the same effect as performance. If a promisor tenders performance of his promise but the other party refuses to accept , promisor stands discharged of his obligations
Irwin/McGraw-Hill
10-6
DISCHARGE OF CONTRACT
EX : A contracts to sell his car to B for Rs 2 lakhs, as soon as the car is delivered to B & B pays the agreed price to A , the contract comes to an end by performance. By performance means where the parties have done whatever was contemplated under the contract & contract comes to an end
Irwin/McGraw-Hill
10-7
DISCHARGE OF CONTRACT
Meaning of mutual consent A contract may terminate by mutual consent by any of the following six ways:Novation : substitution of new contract for the original contract( original contract stands discharged) Rescission : It means cancellation of all or some of the terms of a contract . Where parties mutually decide to cancel all or some of the terms of the contract. When a breach of contract is committed by one party , the other party may treat the contract as rescinded. In such a case the aggrieved party is freed from all such obligations under the contract
The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
10-8
DISCHARGE OF CONTRACT
Alteration : Remission : It is acceptance of lesser sum than what was contracted for or a lesser fulfillment of the promise made. EX:A owes B Rs5,000/= . A pays Rs 2,000/= to B in satisfaction of whole debt. & B accepts it . Whole debt / contract is discharged. Waiver : means relinquishment or abandonment of a right Merger : A contract is said to be discharged by merger where an inferior right possessed by a person coincides with a superior right of the same person
Irwin/McGraw-Hill
10-9
DISCHARGE OF CONTRACT
Waiver : means relinquishment or abandonment of a right: When a party waives his right under the contract, the other party is relieved of his obligations. Ex: A promises to paint a picture for B . B afterwards forbids him to do so . A is no longer bound to perform the promise Merger : A contract is said to be discharged by merger where an inferior right possessed by a person coincides with a superior right of the same person Ex; A , who is holding certain property under a lease , buys it . His right as a lessee vanish ; they are merged into the right of ownership which he has now acquired.
Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 2000
10-10
DISCHARGE OF CONTRACT
A
Irwin/McGraw-Hill
10-11
DISCHARGE OF CONTRACT
Subsequent
impossibility
contract is made , becomes impossible , or by reasons of some events which the promisor could not prevent, unlawful , becomes void when the act becomes impossible or unlawful.
The following conditions must be fulfilled:That the act should have become impossible. That the impossibility should have been by reasons of some event which promisor could not prevent & That the possibility should not have been self inducted by the promisor or due to his negligence
The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
10-12
DISCHARGE OF CONTRACT
Circumstances
of supervening or Subsequent
impossibility
A contract is deemed to have become impossible of performance & thus void under following circumstances: Destruction of the subject matter of the contract:
Where the subject matter of a contract is destroyed for no fault of the promisor , the contract becomes void by impossibility of performance. Ex: A music hall was agreed to be let out on certain dates, but before these dates it was destroyed by fire the owner was absolved from liability to let the building as promised.
Irwin/McGraw-Hill
10-13
DISCHARGE OF CONTRACT
Circumstances
of supervening or Subsequent
impossibility
EX : A river changes its course & part of land which was earlier in India now become part of Bangladesh.
Ex: A painter contract to make a painting of Mr AX . He takes advance of Rs 10,000/= for this work & balance Rs 90,000/= after the work is done He dies before making painting . EX: A singer agrees to give performance, gets pain in his throat on the day of performance. EX: X borrowed Rs 5 lakhs from Y to be repaid on 17 Jan 2014. X dies on 16 Jan 2014. Xs legal representative shall be liable to pay the amount . Of course the legal representatives liability is limited to the extent of the value of the assets inherited by him.
Irwin/McGraw-Hill
10-14
DISCHARGE OF CONTRACT
Circumstances
of supervening or Subsequent
impossibility
Declaration of war : If a war is declared between two countries subsequent to the making of a contract. the parties would be exonerated from its performance. EX:
Irwin/McGraw-Hill
10-15
DISCHARGE OF CONTRACT
Doctrine
of supervening impossibility
An act which could not have been in the contemplation of parties when the contract was made , renders performance impossible or unlawful, the contract becomes void & thus stands discharged . This is known as frustration of contract brought out by supervening impossibility
Examples:
Destruction of subject matter-without the fault of promisor or promisee, the contract is discharged . It is only when property & goods destroyed can not be regained .
The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
10-16
DISCHARGE OF CONTRACT
Examples: Failure of ultimate purpose. Common wealth games cancelled Death or personal incapacity of promisor: when performance of a contract depends upon personal skill or qualification or existence of a given person , the contract is discharged on the illness or incapacity or death of that person. Change of Law: A subsequent change of law may render the contract illegal & in such cases the contract is deemed discharged.
The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
10-17
DISCHARGE OF CONTRACT
Cases not covered under supervening impossibility
He who agrees to do an act must do it or pay damages for not doing it 1. The mere fact that the performance is more difficult or expensive or less profitable than the parties anticipated , does not discharge the contract. 2. Commercial impossibility- profit comes to a very low level EX: A contract to lay gas pipelines is not discharged because the out break of war makes it expensive to procure the necessary materials.
Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 2000
10-18
DISCHARGE OF CONTRACT
3. The promisor is not exonerated from his liability if the third person on whose work the promisor relied ,fails to perform
4. Strikes , Lock outs and civil disturbances.: Events like these are not the cause of to terminate the contracts unless there is clause in the contract to that effect.
5. Failure of one of the objects: When a contract is entered into for several objects , the failure of one of them does not discharge the contract. EX: A agreed to let a boat to H to (a) view the naval review at the coronation and (b) to cruise around fleet. Owing to the kings illeness the naval review was cancelled but the fleet was assembled and the boat could have been used to cruise round the fleet. Held that contract was discharged.
Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 2000
10-19
DISCHARGE OF CONTRACT
As seen from our discussion that impossibility means legal impossibility & does not cover commercial impossibility . Thus a strike may create a difficult situation, but it does not amount to impossibility in a legal sense. It is a case of mere commercial impossibility , which if the parties desire , may specifically provide for in the contract. Such a provision is contained what is known as Force
clause
majure
Force majure clause: The effect of such a clause is to totally dispense with the performance of all obligations arising otherwise than under a contract.
As per limitation act , legal action required to be initiated well within specified period, otherwise the promisee is debarred from filling a suit in a court of law & the contract stands cancelled
The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
10-20
DISCHARGE OF CONTRACT
A
Insolvency: A contract is discharged by insolvency of one of the parties to the contract. Merger: Where an inferior right contract merges into the superior right contract , the former stands discharged automatically.
The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
10-21
DISCHARGE OF CONTRACT
A
Breach brings an end to the obligations created by a contract on the part of each of the parties, Aggrieved party i.e. the party not at fault can sue for damages for breach of contract
The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
10-22
DISCHARGE OF CONTRACT
Breach
1.
2.
Anticipatory breach:Breach of contract occurring before the time fixed for performance has arrived. It may take place in two ways:Expressly by words spoken or written, party to the contract communicates to the other party. Implied by conduct of one of the parties:-Refused to perform or disabled himself from performing.
Irwin/McGraw-Hill
10-23
Irwin/McGraw-Hill
10-24
When there is breach of contract , injured party becomes entitled to any one or more of the following remedies against the guilty party.
Remedies
of Breach of contract .
1. Rescission of the contract. Other party need not perform his part of contract & may also sue guilty party 2. Suit for damages:
Damages are mandatory compensation allowed to the injured party for the loss suffered by him as a result of breach of contract.
1 Ordinary or general or compensatory damages Fairly & reasonable damages arising naturally & directly in the usual course of things from the breach of contract. Restricted to direct or proximate consequences; Excluding remote or indirect losses
Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 2000
10-25
Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 2000
10-26
Irwin/McGraw-Hill
10-27
Suit upon quantum merit : Another remedy available to injured party against guilty Party for breach of contract is to file a suit upon quantum merit means as much as earned or in proportion to the work done. ( i.e. claiming reasonable compensation in proportion to the work done)
Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 2000
10-28
Irwin/McGraw-Hill
10-29
for an Injunction: Injunction is an order of court restraining a person from doing a particular act. It is a mode of securing the specific performance of the negative terms of a contract Injunction is a preventive relief. It is particularly appropriate in cases of anticipatory breach of contract where damages would not be an adequate relief.
The McGraw-Hill Companies, Inc., 2000
Irwin/McGraw-Hill
10-30
Irwin/McGraw-Hill
10-31
Ex: A agreed to sing at B s theatre for three months wef 01 mar 2013. Subsequently she contracted to sing at Cs theatre & refused to sing at Bs theatre. On a suit by B court granted injunction restraining her singing elsewhere & awarded damages to B to compensate him for loss caused by As refusal to sing ( but court refused to order specific performance of her i.e. engagement to sing at plaintiffs theatre)
Irwin/McGraw-Hill
10-32
THANKS
Irwin/McGraw-Hill