Discharge of Contract

DISCHARGE OF CONTRACT
CONTINGENT CONTRACTS
(Sections 31 to 36)
Meaning of Contingent:
Contingent is that which may happen or not; conditional
dependent.
It is n event which may occur; a casualty; a possibility, a
fortuitous event which comes without design, foresight or
expectation.
Contingent is used to denote a thing which is liable to failure
on the happening or non-happening of a specific event, condition
or state of things.
It depends on probability.
In English Law, contingent contracts are known as conditional
contracts.
A contractual promise may be absolute or conditional.
An absolute contract is one where the promisor undertakes to
perform the contract at all events.
Therefore a contingent contract, as the name suggests is a
conditional contract as distinguished from an absolute contract.
1
DISCHARGE OF CONTRACT (Contd)
CONTINGENT CONTRACTS (Continued)
(Sections 31 to 36)
Cunningham and Sheppard explained the contract in the
following words: Every contract constitutes a relation
between the parties to it and rights arising out of that relation
but it does not follow that every contract creates a right
immediately enforceable. The right created may be one which
the parties agree shall be enforceable only on the happening of
some future event as to which neither party makes any promise
and which is therefore collateral to the contract, its import
being merely to mark the moment at which a right created by
the contract becomes enforceable. These contracts are
called ;contingent.
STATUTORY DEFINITION: SECTION 31 OF ICA:
A contingent contract is a contract to do or not to do
something if some event, collateral to such contract, does or
does not happen.
Following the above principle the remaining sections 32to 36
deal with various circumstances under which a contingent
contract may arise and the manner of enforceability of them.
2
CONTINGENT CONTRACTS (Continued)
(Sections 31 to 36)
Distinction between wagering agreement and contingent contract
1) A wagering agreement consists of reciprocal promises while a
contingent contact may not consist of reciprocal promises.
2) Every wagering agreement is of a contingent nature while
every contingent contract is not a wagering nature.
3) In the case of a wagering agreement the parties must
contemplate determination of uncertain event as a sole
condition of their contract and this is not so in the case of a
contingent contract.
4) In a wagering agreement the parties are not interested in the
occurrence or non-occurrence of the event and their interest
is only winning or losing the amount of the wager. However,
in the case of a contingent contract the parties have insurable
interest in the happening or non-happening of the event.
5) In a wagering agreement neither party intends to perform the
contract itself. But in the case of contingent contract, the
p0arties intend to perform their re3spective obligations.
3
Meaning of Discharge and its consequences:
The term Discharge denotes severance of
relationship or cessation of relationship.
This means that the vinculum juris originally
established through formation gets severed.
As a consequence of severance of relationship the
parties go back to their status quo ante position i.e.,
the position which the parties occupied before they
entered into a contract.
In some cases after fulfillment of the settled
expectations severance may take place or in some
cases the parties themselves having agreed to do so
by virtue of doing certain acts as per their desire or
because that the contract itself becoming impossible
of performance or either of the parties committing a
breach of the obligations arisen under the contract.
Based on this, various modes of discharge arise.
4
MODES OF DISCHARGE
By Performance By Agreement By Impossibility By Breach

of Performance
Sections: 37 to 55 Sections: 62 to 67 Section 56 Sections:
57 to 61. 73 to 75
Each one of these modes varies in its enforcement, while in all

these modes the resultant effect remains to be the same i.e., the
parties going back to their status quo ante positions.
The above modes of performance are subject to the application of

the basic principle of ACTIO PERSONALIS MORITUR CUM PERSONA.
5
DISCHARGE OF CONTRACT (Contd):
MEANING OF PERFORMANCE
Means fulfillment of obligations
By fulfilling the obligations the expectations settled will be
carried out.
SECTION. 37:
1. Parties are to fulfill their respective promises.
2. Fulfillment may be actual or constructive.
3. Constructive performance is also equivalent to actual
performance.
4. Performance includes either performance or tender of
performance. (offer to perform).
5. Performance must be made unless dispensed with or
excused under the provisions of this Act or under any other
law.
6. Promises bind the representatives of the promisors in the
case of death of such promisors before p0erformance, unless
a contrary intention appears from the contract.
6
MODES OF DISCHARGE (continued)
Explanation to the Modes of Discharge of Contract
1ST MODE: DISCHARGE BY PERFORMANCE:
MEANING OF PERFORMANCE (Continued):
SECTION 38:
This section deals with the effect of refusal to accept
offer of performance.
Offer of performance connotes readiness and willingness
of a person to perform the promise.
Offer of performance is subject to the following
conditions:
1. It must be unconditional.
2. It must be made at the proper time and place and 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 there
and then to do the whole of what he is bound by his
promise to do.
7
SECTION 38: (continued):
3. If the offer is an offer to deliver anything to the
promisee, the promisee must have a reasonable
opportunity of seeing that the thing offered is the
thing which the promisor is bound by his promise to
deliver.
4. An offer to one of several joint promisees has the same
legal consequences as an offer to all of them.
When the above conditions are fulfilled in an offer to
perform such performance has not been accepted the
promisor is not responsible for non-performance nor
does he thereby lose his rights under the contract.
8
SECTION 39: Effect of refusal of party to perform promise wholly:
As per this section when a party to a contract has refused to
perform or disabled himself from performing, his promise in its
entirety, the promisee may put an end to the contract, unless he
has signified, by words or conduct, his acquiescence in its
continuance.
SECTION 40: Person by whom promise is to be made:
1. If it is the nature of the case that it was the intention of the
parties to any contract that any promise contained in it should
be performed by the promisor himself, such promise must be
performed by the promisor.
2. In other cases, the promisor or his representatives may employ
a competent person to perform it.
3. When a promisee accepts performance of the promise from a
third person , he cannot afterwards enforce it against the
promisor. (SECTION 41).
9
The above stated provisions dealt with a position when
there is an agreement between a single promisor and
single promisee. But Sections 42 to 45 deal with
performance from joint promissors and joint promisees.
Who can demand performance of joint promise? This
question is answered in Section 45. under the heading
Devolution of Joint rights
As per this section when a person has made a promise to
two or more persons jointly, unless a contrary intention
appears from the context, the right to claim performance
rests, as between him and them, with them during their
joint lives, and, after the death of any of them, with the
representatives of such deceased person jointly with the
survivor or survivors, and, after the death of the last
survivor , with the representatives of all jointly. .
10
1ST MODE: DISCHARGE BY PERFORMANCE
The next question is By whom joint promises must be
performed?
This question is answered in sections 42 to 44 of ICA.
1. All promissors must jointly fulfill the promise. Section 42:
When two or more persons have made joint promise, then,
unless a contrary intention appears by the contract, all such
persons, during their joint lives, and, after the death of any of
them, his representatives jointly with the survivor or survivors,
and after the death of the last survivor, the representatives of
all jointly must fulfill the promise
2. Any one or more of joint promisors may be compelled to
perform:.
Section 43 Para 1. When two or more persons make a joint
promise, the promisee may in the absence of an express
agreement, comp0el any one or more of such joint promisors
to perform the whole of the promise.
11
3. Right of contribution inter-se between joint promisors:
If one of several joint promissors is made to perform the
whole of the contract, he may require equal contribution
from the other joint promisors, unless a contrary intention
appears from the contract. Section 43, Para 2.
4. Sharing of loss by default in contribution: Section 43, Para 3:
If any one of the joint promisor makes a default in making
contribution, if any, the remaining joint promisors must bear
the loss arising from such default in equal shares.
5. Effect of release of one joint promisor: Section 44:
If one of the joint promissors is released from his liability by
the promisee, his liability to the promisee ceases but this
does not discharge the other joint promisors from their
liability; neither does it free the joint promisor so released
from his liability to contribute to the other joint promisors.
12
ORDER OF PERFORMANCE OF RECIPROCAL PROMISES;
Sections 51 to 54 of ICA lay down the rules regarding
the order of performance of reciprocal promises.
In this regard reciprocal promises may be classified
into THREE
categories.
Mutual Mutual Mutual
&
&
Independent Dependent
Concurrent
(Section 52) (Section 54)
(Section 51)
13
ORDER OF PERFORMANCE OF RECIPROCAL PROMISES:
(Contd):
1. Mutual Independent: Section 52: Where each party must
perform his promise independently without waiting for
the performance or the willingness to perform of the
other, the promises are mutual and independent.
As per this section, such promises must be performed in
the order expressly fixed by the contract, and where the
order is not expressly fixed, they must be performed in
that order which the nature of the transaction requires.
Whether the promises are such as are to be
independently performed is often a question of
construction depending on the intention of the parties
collected from the agreement as a whole or from what the
nature of transaction requires.
14
(Contd):
2. Mutual & Dependent: Section 54:
Where the performance of the promise by one party
depends on the prior performance of the promise by the
other party, the promises are mutual and dependent.
Section 54 provides for such promises and lays down that
if the promisor who is required to perform his promise in
the first place, fails to perform it , such promisor cannot
claim the performance of the reciprocal promise. and must
make compensation to the other party to the contract for
any loss which such other party may sustain by the non-
performance of the contract,.
3. Mutual and Concurrent: Section 51: Where the two
promises are to bee performed simultaneously, they are
said to be mutual & concurrent.
15
(Contd):
4. Consequences where a party prevents performance:
Section 53:
When a contract contains reciprocal promises and one
party to the contract prevents the other from
performing his promise, the contract becomes voidable
Timeat and
the place
option of the so prevented;
of performance: (Sections and
46 tohe
50 is entitled
& 55 ICA): to
compensation
Where prescribed from
by the
the other partyWhere
promisee: for anytheloss
timewhich
and
he may
place aresustain in consequence
prescribed of the
by the promisee, theperformance
non-performance
of the
of the contract.
contract must be at the specified time and place
Where not prescribed by the promisee: If no time and place
are prescribed by the promisee, then the contract must be
performed (i) within a reasonable time and (ii) at the proper
place.. Generally, the promisor must ask the promisee where
he would like to have the contract performed, and to 16
perform it at such place. (Section 49)
1ST MODE: DISCHARGE BY PERFORMANCE (Continued):
Effect of failure to perform a contract within the stipulated time:
(Sec 55).
1. Where time is of the essence of the contract and there is
failure to perform within the fixed time, the contract (or so
much of it as remains unperformed becomes voidable at the
option of the promisee. He may rescind the contract and sue
for its breach.
2. Where time is not of the essence of the contract, failure to
perform within the faced time does not make the contract
voidable. This means that the promisee cannot rescind the
contract and he will have to accept the delayed performance.
But, he would be entitled to claim compensation from the
promisor for any loss caused to him by the delay. This rule is,
however, subject to the condition that the promisor should not
delay the p0erformance beyond a reasonable time, otherwise
the contract will become voidable at the option of the
promisee.
17
Effect of failure to perform a contract within the stipulated
time: (Sec 55).
3. In case of a contract voidable on account of the promisors
failure to perform his promise within the agreed time or
within a reasonable time, as the case nay be, if the promisee,
instead of rescinding the contract, accepts the delayed
performance, he cannot afterwards claim compensation for
any loss caused by the delay, unless, at the time of accepting
the delayed performance, he gives notice to the promisor of
his intention to do so.
When is the time the essence of the contract?\ Time is of
the essence of the contract when (i) if the parties to the
contract have expressly agreed to treat it as such, or (ii) if
the nature of the transaction and the intention of the arties
are such that the performance within a limited time is
necessary.
18
Time is of the essence: Explanation: (Continued):
It is well settled that unless a different intention appears from the
terms of contract, ordinarily in commercial contracts the time of
delivery of goods is of the essence of that contract but not the time
of payment of price. WASOO ENTERPRISES v J.J. Oil Mills, AIR 1968 Guj. 57.
This is so because there are great chances of rapid market
fluctuations and also because after entering into a contract the
businessman, on that basis, may enter into other contracts with
other persons which cannot be fulfilled unless he receives the
delivery of goods under the contract.
On the other hand, in contracts for the purchase of land, usually
time is not of the essence of the contract because land values do not
frequently fluctuate. G.PILLAI v P. NADAR, 1967 1 SCR 227.
Mode or manner of performance: Section 50:
The performance of any promise may be made in any manner, or at
any time which the promisee prescribes or sanctions.
.
19
Section 57: Reciprocal promises to do things legal, and also
other things illegal::
Where persons reciprocally promise, firstly to do certain
things which are legal, and secondly, under specified
circumstances, to do certain other things which are illegal,
the first set of promises is a contract, but the second set is a
void agreement.
Section 58: Alternative promise, one branch being illegal:
In the case of an alternative promise, one branch of which is
legal and the other illegal, the legal branch alone can be
enforced. (Blue Pencil Rule)
APPROPRIATION OF PAYMENTS: (Sections 59, 60 and 61):
When a debtor, who owes several debts to the same creditor,
makes a payment which is insufficient to satisfy the whole
indebtedness, the question arises as to which of the debts
the payment is applied.
20
APPROPRIATION OF PAYMENTS: (Sections 59, 60 and 61): (contd):
1. Debtors express instructions must be followed:
Appropriation is a right given to the debtor for his benefit. Thus
if the debtor expressly states that the payment made by him is
to be applied to the discharge of some particular debt, the
creditor must act accordingly , otherwise he should not accept
payment.
2. Debtors implied intention is to be followed:
If there are no express instructions, then debtors implied
intention should be gathered from the circumstances attending
the payment and appropriation must be applied accordingly.
3. Appropriation by the creditor:
If there is no express or implied direction by the debtor
regarding appropriation, then the creditor has got the option
to apply the payment to any lawful debt due from the debtor ,
including a debt which is barred by the Limitation Act.
21
APPROPRIATION OF PAYMENTS: (Sections 59, 60 and 61):
(contd):
4. Appropriation by law:
Where neither debtor nor the creditor has made any
appropriation, then according to law, the payment is to be
applied in discharge of the debts in order of time, whether or
not they are time-barred. If the debts are of equal standing , the
payment shall be applied in discharge of each proportionately.
5. When principal and interest both due:
If a payment has been made without expressly stating whether it
is towards interest or principal, payment is to be applied
towards interest first, and then the balance to principal.
SRINIVASALU v KONDAPPA, 1960 A.P. 174.
In England it has been considered a general rule since
CLAYTONS CASE 1816 1 Mer 608 that when a debtor makes a
payment he may appropriate it to any debt he pleases, and the
creditor must apply it accordingly.
22
2nd MODE: DISCHARGE BY PERFORMANCE:
DISCHARGE BY AGREEMENT: Sections 62 & 63:
A contract which is created by the parts may also be
discharged by another agreement between the parties,
Sections 62 & 63 deal with this subject.
1. NOVATION: Novation means when a new contract is
substituted for an existing contract, either between the
same parties or between different parties, the consideration
mutually being the discharge of the old contract.
If parties are not changed then the nature of the obligation
(i.e., material terms of the contract) must be altered
substantially in the new substituted contract, for, a mere
variation of some of the terms of the contract, while the
parties remain the same, is not novation but alteration.
When the parties to a contract agree for novation, the
original contract is discharged and need not be performed.
23
DISCHARGE BY AGREEMENT: Sections 62 & 63:
NOVATION: (continued):
Requirements explained in the case of LATA CONSTRUCTION v
RAMESHCHANDRA RAMNIKLAL SHAH, AIR 2000 SC 380. One of the
essential requirements of Novation as contemplated in the
section is that there should be complete substitution of a new
contract in place of the old. It is in that situation that the
original contract need not be performed. Substitution of a
new contract in place of the old which would have the effect of
rescinding or completely altering the terms of the original
contract, has to be by agreement between the parties. A
substituted contract should rescind or alter or extinguish the
previous contract. But if the terms of the two contracts are
inconsistent and they cannot stand together. the subsequent
contract cannot be said to be in substitution of the earlier
contract
24
DISCHARGE BY AGREEMENT: Sections 62 & 63: (continued):
2. Alteration: Alteration of a contract means change in or more of
the material terms of a contract. If a material alteration in a
written contract is done by mutual consent, the original
contract is discharged by alteration and the new contract in its
altered form takes its place. A material alteration s one which
alters the legal effect of the contract, e.g., a change in the
amount of money to be paid or a change in the rate of interest
3. Rescission: A contract may be discharged, before the date of
performance, by agreement between the parties to the effect
that it shall no longer bind them. An agreement of rescission
releases the parties from their obligations arising out of the
contract.
4. Remission: may be defined as the acceptance of a lesser sum
than what was contracted for or a fulfillment of the promise
made
25
Explanation to the Modes of Discharge of Contract:
3RD MODE: DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE
Section 56:
Initial Subsequent
Impossibility Impossibility
(Section 56 Para 1) (Section 56 Para
2)
Solemn expectation of the parties is that the obligations created
through a contract will be fulfilled at all time and in all events.
This points out that parties should not go back on their promises.
This principle was established in English Law in the case of
PARADINE v JANE, 62 ER 897 holding that irrespective of the difficulties
encountered the obligations are to be fulfilled.
26
3RD MODE: DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE (cntinued):
The rule laid down in the above stated case caused much
hardship and inor4der to mitigate the same this law was evolved
about impossibility of performance, which in English Law was
called as Doctrine of Frustration. But Section 56 in ICA is wider
than the principle in English Law.
Section 56 Para 1: Initial Impossibility:
As per Para 1 an agreement to do an act impossible in itself is
void. This means that the act contemplated in the agreement will
be impossible inherently or by the very nature and which may or
may not be known to both the parties at the time when the
contract is made. (Illustration (a) & (b))
But if the impossibility is not obvious and the promisor alone
knows of the impossibility or illegality then existing or the
promisor might not have known as such after using reasonable
diligence, such promisor is bound to compensate the promisee for
any loss he may suffer through the non-performance of the
promise, in spite of the agreement being void ab-initio.(Section 56
Para 3). Illustration (c).
27
3RD MODE: DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE
(continued):
Explanation to Section 56 Para 2:
This Para declares that a contract to do an act which, after the
contract is made, becomes impossible, or, by reason some event
which the promisor could not prevent, unlawful, becomes void when
the act becomes impossible or unlawful
The following ingredients emerge from this definition:
1) That the act should have become impossible.
2) That impossibility should be by reason of some event which the
promisor could not prevent and
3) That the impossibility should not be self induced by the promisor
or due to his negligence.
Hence, the word impossible should be construed in its practical
sense and not only in a physical or literal sense. It is sufficient for
the act to be impossible that it becomes impracticable or extremely
hazardous or useless from the point of view of the object and
purpose which the parties had in view.
28
3RD MODE: DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE (continued):
Explanation to Section 56 Para 2: (continued):
Thus as per this para, where an event which could not be
reasonably have been in the contemplation of the parties when
the contract was made, renders performance impossible or
unlawful , the contract becomes void and stands discharged.
This is known as frustration of the contract brought about by
supervening impossibility. It is also known as the Doctrine of
Supervening impossibility.
The rationale behind this doctrine is that if the performance of a
contract becomes impossible by reason of supervening
impossibility or illegality of the act agreed to be done, it is
logical to absolve the parties from further performance of it as
they never did promise to perform an impossibility.
In the case of subsequent impossibility or illegality , the
dissolution of the contract occurs automatically. It does not
depend upon novation or remission of a contract , on the
choice of the parties. It depends on the effect of what has
actually happened on the possibility of performing the contract.
29
Explanation to Section 56 Para 2: (continued):
Cases where the doctrine of supervening impossibility applies:
1) Destruction Subject-matter:
TAYLOR v CALDWELL, 1863 122 A.R. 299. Destruction of music
hall .
2) Failure of ultimate purpose: (Non-occurrence of the
contemplated event) KRELL v HENRY, 1903 2 K.B. 740 Coronation
case.
3) Death or personal incapacity of the promisor: (Ill. (b) & (e)
to Sec.56).
4) Change of law:
5) Outbreak of war: METROPOLITAN WATER BOARD v DICK KERR &
CO., 1918 A.C. 1191.
In all the above cases impossibility was a ground for excuse
in the performance of contract.
30
Cases not covered by supervening impossibility :
1) Difficulty of performance:
Increased or unexpected difficulty and expense do not, as a
rule, excuse from performance.
2) Commercial impossibility:
When in a transaction profits dwindle to a very low level or
actual loss becomes certain, it is said that the performance of
the contract has become commercially impossible. Such a
situation may arise on account of higher price of the raw
material or increase in the wage bill etc. Commercial
impossibility does not discharge a contract. SACHINDRA NATH v
GOPAL CHANDRA, 1949 Cal. 240.
3) Impossibility due to the default of a third person:
The doctrine of supervening impossibility does not cover cases
where the contract could not be performed because of the
impossibility created by the failure of a third person on whom
the promisor relied.
31
Cases not covered by supervening impossibility (continued):
4) Strikes and lock-out:
A strike by the workmen or the lockout by the employer
also does not excuse performance because the former is
manageable (as labour is available otherwise) and the latter
is self-induced. Where the impossibility is not absolute or
where it is due to the default of the promisor himself,
Section 56 would not apply. As such these events do not
discharge a contract. HARI LAXMAN v SECRETARY OF STATE FOR
INDIA, 1928 30 Bom. L.R. 49 Lessor of salt pans agreeing to
repair them did not carry out the repairs due to strike by
their workmen.
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 a contract.
*******************
32
4th MODE: DISCHARGE BYBREACH:
This mode of discharge also brings to an end the obligation
created by a contract on the part of each of the parties.
In these cases the aggrieved party i.e., the party not at fault
can sue for damages for breach of contract as per law; but
the contract as such stands terminated.
KINDS OF BREACH
PRESENT ANTICIPATORY
BREACH
BREACH
Committed on the due date Committed before
the due date.
33
4th MODE: Discharge By Breach: (continued):
Meaning of Breach.
Failure Inability
Refusal
Therefore, when a party commits breach by any one of the
manners stated above, the aggrieved party has a right to file a suit
for damages against the wrongdoer for the loss sustained by him.
The applicability of the above principle seems a possibility in the
case of present breach, since the aggrieved party can conclude
that the wrongdoer has no intention to perform his obligations.
But the question that arose was whether the above stated
principle can be applied in the case Anticipatory Breach since
time of performance is still available even after breach. This
question is answered below.
34
4th MODE: Discharge By Breach: (continued):
Effects of an anticipatory breach:
Section 39 ICA deals with anticipatory breach of contract and
provides as follows: When a party to a contract has refused to
perform, or disabled himself from performing, his promise in
its entirety, the promisee may put an end to the contract,
unless he has signified, by words or conduct, his acquiescence
in its continuance.
The meaning of this section is that when there is an
anticipatory breach, the promisee is excused from
performance or from further performance . Further, it gives an
option to the promisee i,e., the aggrieved party, whereby i) he
may either treat the contract as rescinded and sue the other
party for damages for breach of contract immediately without
waiting until the date of performance,. This principle holds
good either when the terms of the contract are absolute
(HOCHESTER v DE LA TOUR,1 18 ER 922) or when the contract is
contingent ( FROST v KNIGHT,1897, 21 Bom 23).
35
4th MODE: Discharge By Breach: ( continued):
Effects of an anticipatory breach: (continued)
ii) He may elect not to rescind but to treat the contract as
still operative, and wait for the time of performance and then
hold the other party responsible for the consequences of
non-performance. But. in that case , he will keep the
contract alive for the benefit of the other party as well as his
own and the guilty party, if he so decides on reconsideration,
may still perform his part of the contract and can also take
advantage of any supervening impossibility which may have
the effect of discharging the contract. {
BREACH OF CONTRACT AND REMEDIES.
Suit for Damages Suit for Specific Performance Suit for

Injunction.
36
4th MODE: Discharge By Breach: (continued): Expln. To
remedies:
Suit for Damages:
Damages are a monetary compensation allowed to the
injured party for the loss or injury suffered by him as a
result of the breach of the contract.
The fundamental principle underlying damages is not
punishment but compensation.
By awarding damages the court aims to put the injured
party into the position in which he would have been, had
there been performance and not breach, and not to punish
the defaulter party.
As a general rule, compensation must be commensurate
with the injury or loss sustained, arising naturally from the
breach.
If actual loss is not proved, no damages will be awarded.
37
4th MODE: Discharge By Breach: (continued): Expln. to remedies:
Suit for Damages (continued): Principles:
Assessment of Damages: When the court directs the wrong-
doer to pay damages to the aggrieved party the extent to
which he is entitled to damages is set forth in Section 73 of
ICA.
a) Ascertainment of damagE: Damages that may be awarded
must be for the damage which naturally arose in the usual
course of things from such breach. No compensation is to be
given generally for any remote or indirect loss sustained by
reason of the breach. (Ordinary damages). The maxim IN JURA
NON REMOTA CAUSA PROXIMA SED SPECTATUR applies. In
other words, this rule is known as Causa Proxima Rule or
Doctrine of Proximate cause.
b) Quantum of damagES: Damages must be compensatory and
not penal in nature. The court should award only such amount
to exactly off-set the losses suffered by the aggrieved party and
it is not intended to penalize the wrong-doer.
38
Suit for Damages (continued):
Kinds of damages
Ordinary or General Special Exemplary

Nominal
Or compensatory damages or punitive
damages
damages or vindictive
The principle regarding award of damages had its genesis in

Common Law though the Rule laid down in the case of HADLEY v
BAXENDALE,1854, 9 Ex,34., decided 18 years before the passing of ICA.
This Rule, expressly and carefully framed to be the guide to judges
in directing juries.
39
4th MODE: Discharge By Breach: (continued): Expln. to
remedies:
As per the rule laid down in Hadley v Baxendale ordinary
damages are restricted to the direct and proximate cause
while special damages can be claimed only if the special
circumstances which would result in a special loss in case of
breach are brought to the notice of the other party.
1. Hadley V Baxendale: Crankshaft case - special circumstance
viz., that the mill cannot be run without the broken shaft not
communicated.
2. Horne v Midland Railway Co, 1873 LR 8 C.P. 131: Shoe case - Shoes
sent for Army Delayed arrival Army refused Sold at a loss
in the market - claim for special damages rejected.
3. British Coloumbia Saw Mill & Co., Vv NETTLESHIP, 1868 LR 3 C.P.
499 Machinery parts case - Machinery parts consigned to
set up the mill purpose not communicated no special
damages.
40
In certain cases though the special circumstances have not been
made known by express means but if the parties are already
aware of the same in the course of trade practices express
mention of the special circumstances would become unnecessary,
and a claim for special damages may be entertained by the courts
of law. For instance:
1. In Simpson V London North Western Railway Co., 1876 1 B.D. 274 Sample
for Cattle Show Medicines sent for exhibition in Cattle Show
Annual Feature Railway Company aware of it delayed delivery
claim for special damages were allowed.
Damages for mental pain and suffering: if allowed? Allowed only in
special cases viz, when breach is wanton or recklessly caused and
caused bodily harm and when the defendant had reason to know
that the breach would cause mental suffering.
DIESON v SAMSON, 1971 SLT 49 Failure of the photographer to turn
up to the wedding photos. Claim was allowed under this principle.
41
Duty to mitigate Damage suffered: Explanation to Section 73:
It is the duty of the injured party to mitigate damage suffered
as a result of the breach of the contract by the other party.
He must use all reasonable means of mitigating the damage,
just as a prudent man would, under similar circumstances in his
own case.
He cannot recover any part of the damage, traceable to his own
neglect to mitigate.
The onus of proof, however, is on the defendant to show that the
plaintiff has failed in his duty of mitigation and the plaintiff is
free from the burden of proving that he tried his best to
mitigate the loss. PAUZU LTD. V SAUNDERS, 1919 2 K.B. 581.
The rule in regard to mitigation must be applied with discretion
and a man who has already put himself in the wrong by breaking
his contract has no right to impose new and extraordinary
duties on the aggrieved party.
42
Liquidated Damages and Penalty:
Liquidated damages means a sum fixed up in advance , which
is a fair and genuine estimate of the probable loss that is likely
to result from the breach.
Penalty means a sum fixed up in advance, which is extravagant
and unconscionable in amount in comparison with the greatest
loss that could conceivably be proved to have followed from the
breach. Thus the essence of penalty is a payment of money
stipulated as in terrorem of the offending party.
When a sum if fixed in the contract payable in case of breach
question arises if the sum is liquidated damages or penalty.
Courts in England usually allow liquidated damages as
stipulated in the contract , without any regard to the actual loss
sustained.
43
Liquidated Damages and Penalty: (continued)
In England Penalty clauses are treated as invalid and the
courts in that case calculate damages according to the
ordinary principles and allow only reasonable compensation.
Indian Law through Section 74 does away with the distinction
between liquated damages and penalty.
This Section lays down that the Courts are not bound to treat
the sum mentioned in the contract, either by way of liquated
damages or penalty as the sum payable for the breach.
Instead the courts are required to allow reasonable
compensation so as to cover the actual loss sustained , not
exceeding the amount so mentioned in the contract.
Thus, according to Indian Law the named sum regardless
whether it is penalty or not, determines only the maximum
limit of liability in case of breach of contract.
44
Liquidated Damages and Penalty: (continued)
Section 74 of ICA contains an exception to the aforesaid
principle:
When any person enters into any bail bond, recognizance or
other instrument of the same nature, or under the provisions of
any law or under the orders of the Government, gives any bond
for the performance of any public duty or act in which the public
are interested, he shall be liable to pay the whole sum mentioned
therein upon breach of the condition of any such instrument.
Stipulation regarding payment of interest: The Explanation to
Section 74 states that a stipulation for increased interest from
the date of default may be a stipulation by way of a penalty.
This implies that such a stipulation may be considered as a
penalty clause and disallowed by the courts, if the enhanced rate
is exorbitant.
45
Suit for Damages (continued): Suit upon Quantum Meruit: Secs. 65
& 70).
Apart from a claim for damages, the remedy of filing a suit upon
Quantum Meruit is available.
The phrase quantum meruit literally means as much as he is
earned or in proportion to the work done.
A right to sue upon quantum meruit usually arises where after
part performance of the contract by one party, there is a breach
of contract, or the contract is discovered void or becomes void..
This remedy may be availed of ether without claiming damages
(i.e., claiming reasonable compensation only for the work done)
or in addition to claiming damages for breach ( claiming
reasonable compensation for part performance and damages for
the remaining unperformed part).
Quantum Valebant: means as much as the goods worth A suit
under this principle will lie in respect of the goods.
46
QUASI CONTRACTS
(Sections 68 to 72).
# Generally a contract is the result of an agreement enforceable by
law.
# But in some cases essentials like Offer, Acceptance, consensus-
ad-idem and intention on the part of the party making the
contract will be absent, still the law, from the conduct and
relationship of the parties, implies a promise imposing an
obligation on the one party and conferring a right in favour of
another.
# In other words, under special circumstances obligations
resembling those created by a contract are imposed by law
although the parties have never entered into a contract.
# Such obligations imposed by law are referred to as Quasi
contracts or Constructive contracts under the English Law, and
Certain relations resembling those created by contracts under
Indian Law.
# The term Quasi-contract has been used because such a contract
resembles with a contract so far as result or effect is concerned
but it has little or no affinity with a contract in respect of mode of
creation.
47
QUASI CONTRACTS (continued)
(Sections 68 to 72).
# A quasi-contract rests upon the equitable doctrine of unjust
enrichment which declares that a person shall not be allowed to
enrich himself unjustly at the expense of another. This doctrine has
been propounded by Lord Mansfield.
# A suit for damages for the breach of the contract can be filed in the
case of a quasi-contract in the same way as in the case of a
completed contract.
Instances of quasi-contract as set in the sections are:
1) Claim for necessaries supplied to a person incapable of
contracting or on his account. (Section 68)
2) Reimbursement of person paying money due by another (Section
69)
3) Obligation of person enjoying benefit of non-gratuitous act.
(Section 70)
4) Responsibility of finder of lost goods. (Section 71)
5) Liability of person to whom money is paid, or thing delivered by
mistake or under coercion. (Section 72)
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48

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DISCHARGE OF CONTRACT

By Performance By Agreement By Impossibility By Breach

Each one of these modes varies in its enforcement, while in all

The above modes of performance are subject to the application of

BREACH OF CONTRACT AND REMEDIES.

Suit for Damages Suit for Specific Performance Suit for

Ordinary or General Special Exemplary

The principle regarding award of damages had its genesis in

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