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Discharge of a Contract and Remedies for Breach of Contract

1. Discharge of a Contract

The term "discharge of a contract" refers to the termination of the contractual obligations of the parties involved. A contract can be discharged in the following ways:

(a) Discharge by Performance

  • A contract is discharged when the parties fulfill their respective obligations as per the terms of the contract.
  • Types of Performance:
    • Actual Performance: Complete fulfillment of contractual obligations.
    • Attempted Performance (Tender): A valid offer to perform the obligation, which is refused by the other party.

(b) Discharge by Agreement or Consent

The contract may be terminated by mutual consent or agreement between the parties. Common methods include:

  1. Novation: Substitution of a new contract for the existing one, either between the same parties or involving new parties.
    • Example: A owes ₹10,000 to B. With B’s consent, C agrees to pay on behalf of A.
  2. Rescission: Cancellation of a contract by mutual agreement.
  3. Alteration: Alteration of one or more terms of the contract with mutual consent.
  4. Remission: Acceptance of a lesser performance than what was agreed upon.
  5. Waiver: Intentional relinquishment of a right under the contract.
  6. Merger: When an inferior right merges into a superior right.

(c) Discharge by Impossibility of Performance

A contract is discharged if it becomes impossible to perform due to unforeseen circumstances. This includes:

  • Initial Impossibility: The contract was impossible to perform from the beginning.
  • Subsequent (Supervening) Impossibility: Performance becomes impossible after the contract is made due to events such as:
    • Destruction of subject matter.
    • Death or incapacity of a party required for personal service.
    • Change in law or outbreak of war.

(d) Discharge by Lapse of Time

If the contract is not performed within the time limit prescribed by the Limitation Act, 1963, it is discharged.

(e) Discharge by Operation of Law

The following events discharge a contract by operation of law:

  • Death of a party (in contracts involving personal skill).
  • Insolvency of a party.
  • Unauthorized alteration of the terms of the contract.
  • Rights and liabilities of the same person merge into one.

(f) Discharge by Breach of Contract

A breach occurs when a party fails to perform its obligations. Breach can be:

  1. Actual Breach: Failure to perform the contract at the time of performance.
  2. Anticipatory Breach: One party indicates its intention not to perform its obligations before the due date.

2. Remedies for Breach of Contract

If a contract is breached, the injured party can seek one or more remedies as follows:

(a) Suit for Rescission

  • The injured party may cancel (rescind) the contract and is absolved of further obligations.
  • Example: A agrees to sell goods to B but fails to deliver. B can rescind the contract.

(b) Suit for Damages

  • The injured party can claim compensation for the loss or injury caused by the breach.
  • Types of Damages:
    1. Ordinary Damages: Compensation for direct loss caused by the breach.
      • Example: A fails to deliver goods to B, causing B to purchase them at a higher price.
    2. Special Damages: Damages arising from unusual circumstances that were communicated at the time of the contract.
    3. Exemplary (Punitive) Damages: Awarded to punish the defaulting party for wrongful actions (e.g., dishonoring a cheque).
    4. Nominal Damages: Awarded when there is no actual loss, but a breach has occurred.

(c) Suit for Specific Performance

  • The court may direct the defaulting party to perform the contract as agreed.
  • Applicable in cases where damages are inadequate, and the subject matter is unique.
  • Example: Sale of rare artwork or immovable property.

(d) Suit for Injunction

  • A court order restraining a party from doing something prohibited by the contract.
  • Example: A agrees not to open a competing business but breaches the agreement. B may seek an injunction to stop A.

(e) Suit for Quantum Meruit

  • Quantum Meruit means "as much as earned." The injured party can claim payment for work already completed if the contract is discharged midway.
  • Example: A agrees to paint B's house but is stopped by B after partially completing the work. A can claim payment for the work done.

(f) Liquidated Damages and Penalty

  • Liquidated Damages: Compensation pre-determined by the parties in the contract for breach.
  • Penalty: An additional sum imposed for non-performance, which may or may not be enforceable.

This comprehensive framework ensures fairness and justice in dealing with breaches of contract.

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