BUSINESS LAW

UNIT – II

Performance of Contracts: Various modes of discharge of contracts- Breach of

contracts- Types - Remedies for breach of contracts - Quasi contracts – Features – Types.

Introduction

Performance of contract means fulfillment of legal obligations created by the

contract. When a contract is duly performed by both the parties, the contract comes to a
happy ending. According to Sec.37 of the Act, there are two modes of performance, Actual
Performance or Attempted Performance.

Actual Performance

When a party has done what he had undertaken to do and nothing is left, the
promise is said to be performed. The contract is completely terminated when both the parties
perform the exact thing which each has agreed to do under the contract.

Attempted performance

The party who is bound to perform a promise under a contract is ready and willing to
perform it at the proper time and place. This willingness of the party is known as
“Attempted Performance” or “Offer to perform” or “Tender”.

Various Modes of Discharge of Contracts

Introduction:

Discharge of a contract means termination of contractual relations between the parties

to a contract.

I. Discharge by Performance of Contract

Performance is the usual mode of discharge of a contract. The contract is said to be

discharged when parties to a contract, perform their respective obligation which they have
agreed to do.

II Discharge by Agreement

A contract may be discharged by mutual agreement of the concerned parties.

i. Novation:

The term ‘Novation’ means substitution of a new contract for the existing one. The
new contract may be between the same parties or between different parties. Discharge of the
old contract is the consideration for the new contract. The new contract should be valid and
enforceable. The Novation may be of the following two types.

a. Novation Involving Change of parties

In this type, the parties to the contract are changed but the contract remains the same.

b. Novation without changes of Parties

Substitution of a contract may take place even without change of parties.

ii. Rescission

Rescission means cancellation of the contract.

For example

A, promises to supply certain goods to B on a certain day. Before the actual date of
performance A and B mutually agree that the contract will not be performed. The contract is
rescinded.

iii. Alteration

Alteration means a change in one or more of the material terms of the contract. If the
parties mutually agree to change certain terms of the contract, it has the effect of terminating
the original contract.

iv. Remission

Remission may be defined “as the acceptance of a lesser sum than what was
contracted for or a lesser fulfillment of the promise made.”

For example

A owes B Rs. 5, 000. A pays to B who accepts in satisfaction of the whole debt Rs. 2,
000 paid at the time and place at which the Rs. 5, 000 were payable. The whole debt is
discharged.

v. Waiver

The waiver means the abandonment of a right which a person is entitled to. Where a
party waives his right under the contract, the other party is released of his obligations.
For example

A agrees to repair the car of B. B later on repairs the car. A is no longer bound to
perform the promise. Thus, the contract is terminated by waiver.

vi. Merger

Merger takes place when an inferior accruing to a party, under a contract, merges into
a superior right accruing to the same party either under the same or the other contract.

vii. Accord and Satisfaction

These two terms are used in English Law. The term ‘accord’ may be defined as the
promise to accept fewer amounts than what is due under the contract.

III Discharge by Impossibility of performance

A contract is discharged if its performance becomes impossible.

For Example

An agreement to discover treasure by magi in such cases, there is no contract to

terminate.

The impossibility of performance may be of two types:

(A) Initial Impossibility

(B) Subsequent Impossibility

A. Initial Impossibility (Pre-Impossibility)

It is the impossibility which exists at the time of formation of a contract.

For example

A, contracts to marry B but B already married to C, and being forbidden by the law to
which he is subject to practice polygamy.

B. Subsequent (or Supervening) Impossibility

An Impossibility which arises subsequent to the formation of contract is known as

subsequent. “A contract to do an act which after the contract is made becomes impossible.

For example
 A, contracts to take in cargo for B at a foreign port, A’s Government afterwards
declares war against the country in which the port is situated. The contract becomes void
when war is declared.

Remedies for Breach of Contract

Meaning for Breach

Breach of contract means failure to execute a promise or failure to perform

legal obligation.

Remedies for breach of contract

1. Rescission

The injured party may sue on to treat such contract as cancelled (rescinded). He is
also absolved (relieved) of his legal obligations.

2. Damages

Monetary compensation awarded to an injured party for loss or injury suffered by him
out of breach of contract. The law aims at that in such a case, to put the injured party in its
original position, as if he were before breach.

Kinds of Damages

1. Ordinary or genera or compensatory damages

Ordinary damages are those which naturally arose in the usual course of things from
such breach.

2. Special damages

Special damages are those resulting from a breach of contract under some special or
unusual circumstances. These damages constitute the indirect loss suffered by the injured
party due to the breach of contract.

3. Exemplary or punitive or vindictive Damages

It is neither a compensatory nor a punitive sum of money. It is awarded when an

injured party has not actually suffered any damages.

4. Liquidated damages

It is a pre estimated sum fixed in advance to be payable in case a probable loss may
likely to result from the breach.
5. Suit upon quantum Meruit

“Quantum Meruit” means “payment in proportion to the amount of work done” or

“reasonable value of work done”.

6. Suit for specific performance

Specific performance means the actual carrying out of the contract as agreed. Where
damages are not an adequate remedy for breach of the contract, the court may direct the party
in breach to carry out his promise according to the terms of the contract.

7. Suit for injunction

a. Injunction means “an order court restraining a person from doing a particular unlawful act”

b. It is an order issued by the court against a negative act. It is a preventive relief granted by
the court.

c. In detail, it is given to restrain an unlawful act of opposite patty or in case anticipatory

breach of contract.

Quasi Contract

Meaning

Quasi contract may be defined as “a transaction in which there is no contract between

the parties; the law creates certain rights and obligations between them which are similar to
those created by a contract.

Basic of Quasi Contracts

Quasi-contracts are a kind of contract by which one party is bound to pay money in
consideration of something done.

Features of a Quasi-contract

The characteristics or features of a quasi-contract

The salient characteristics or features of a quasi-contract, in brief, are as under:

1. It is imposed by law and does not arise from any contract.

2. It is not a true contract but an obligation imposed by law.

3. It arises from a duty of a party and not by promise of any party.

4. It always gives rise to right in personam, not in rem.

5. It rests on the principle of equity that a person should not be allowed unjustly to
enrich himself at the expense of another.

6. The right under it is always a right to money, generally, though not always, to a
liquidated sum of money.

7. A suit for its breach may be filed in the same way as in the case of a complete
contract.

Types of Quasi Contracts

1. Claim for Necessaries Supplied (Sec. 68)

“If a person, incapable of entering into a contract or anyone whom he is legally bound
to support, is supplied by another person with necessaries suited to his condition in life, the
person who has furnished such supplies is entitled to be reimbursed from the property of such
incapable person.”

For example

A supplies B, a lunatic, with necessaries suitable to his condition in life, A is entitled

to be reimbursed from B’s property.

2. Payment by an Interested Person (Sec. 69)

According to Sec. 69 of the Act, “A person who is interested in the payment of money
which another is bound by law to pay, and who, therefore, pays it, is entitled to be reimbursed
by the other.”

3. Benefit of Non-gratuitous Act (sec.70)

“Where a person lawfully does anything for another person, or delivers anything to
him not intending to do so gratuitously, and such other person enjoys the benefit thereof, the
latter is bound to make compensation to the former in respect of, or to restore, the thing so
done or delivered”.
For example

A, a tradesman, leaves goods at B’s house by mistake. B treats the goods as his
own. He is bound to pay A for them.

4. Responsibilities of Finder of Goods (Sec. 71)

“A person who finds goods belonging to another and takes them into his custody, its
subject to the same responsibility as a bailee.”

5. Money paid or things delivered by mistake or under coercion (Sec. 72)

“A person to whom money has been paid, or anything delivered, by mistake or under
coercion, must repay or return it.