Discharge of Contract

A contract is said to be discharged when it ceases to

operate.
The rights and obligations created by it comes to an end.
A contract may be discharged -
By Performance
Actual performance doing what the parties intended
to do when they entered in to the contract.
Attempted performance or tender It is the legitimate
attempt on the part of the promisor to perform his
obligations
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 By Mutual Agreement or Consent
Novation
Rescission
Alteration
Remission
Waiver
Merger

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 By operation of Law

By death.
By merger.
By insolvency.
By unauthorized alteration of terms of a written
contract.
By rights and liabilities becoming vested in the same
person.

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 By Impossibility of Performance
Impossibility existing at the time of agreement
Known to the parties the agreement is void ab
initio.
Unknown to the parties the agreement is void on
the ground of mutual mistake.
Impossibility arising subsequent to the formation
of the contract.

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 By Supervening Impossibility
Destruction of subject matter of contract
Non-existence or non-occurrence of a particular state
or things
Death or incapacity for personal services
Change of law or stepping in of a person with
statutory authority
Out break of war

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 By breach of contract
Actual Breach
a) On the due date of performance.
b) During the course of performance of contract.
i) Express Repudiation.
ii) Implied Repudiation.
Anticipatory Breach
a) By express renunciation.
b) Making the performance of promise become
impossible by doing some act.
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 Remedies for Breach of Contract
When the contract is broken, the injured party has
one or more of the following remedies:
Rescission of the contract.
Suit for damages.
Suit upon quantum meruit.
Suit for specific performance.
Suit for injunction.
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 Rescission of the contract
Rescission means a right not to perform an
obligation.
In case of breach of contract the promisee need not
perform his obligation,
he is not only discharged from his liabilities but also
he is entitled to claim compensation for damages
which he might have sustained due to non
performance of the contract. [Section 39]

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 Suit for damages
Damages are monetary compensation allowed to the
injured party for the loss suffered.
The object of awarding damages is not to punish the
party at fault
but to make good the financial loss suffered by the
injured party due to breach of contract.

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 Quantum Meruit
When an agreement is discovered to be void. [Sec
65]
When something is done without any intention to do
gratuitously. [Sec 70]
When there is an express or implied contract to
render service but no agreement as to
remuneration.
When the completion of the contract has been
prevented by the act of the other party to the
contract.
When a contract is divisible.
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When an indivisible contract is completely
 Specific Performance
The remedy of Specific Performance is in the nature
of equitable remedies based on the principles of
equities.
Among the remedies are specific performance,
injunction, rectification and cancellation of
instruments and rescission of contract.
In the discretion of the court, specific performance
may be enforced:
where there is no standard for ascertaining the actual
damage caused by the non-performance; or
where compensation in money for the non-
performance would not afford adequate relief. 12
 Suit for Injunction
It is a judicial process whereby a party to the contract
is ordered to refrain from doing a particular act or
thing, or
to do a particular act or thing.
It a discretionary remedy and it acts only in
personam.
Injunction means a prohibitory order of the court to
a person to
not to do a particular act he has promised not to do
under a contract, or
to do an act which he has promised, under a
contract, to do.
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 Quasi Contracts
Sometime a person may receive a benefit which
the law regards another person as better
entitled, or for which the law considers he
should pay to the other person, even though
there is no contract between the parties. Such
relationships are called quasi contracts.
Because although there is no contract or
agreement between the parties,
they are put on the same pedestal as though
there was a contract between them.
This is based on the principles of equity.
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 Kinds of quasi contracts
Right to recover the price of necessities supplied.
[Sec 68]
Payment by an interested person. [Sec 69]
Right to recover for non-gratuitous Act. [Sec 70]
Responsibility of the finder of Goods. [Sec 71]
When money is paid or things are delivered by
mistake or under coercion. [Sec 72]

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 Contracts of Indemnity
In a contract of indemnity one party promises to
compensate the other party against loss suffered by
the latter.
Section 125 confines itself to losses occasioned due
to an act of promisor or due to act of any other
persons.
A contract by which one party promises to save the
other from loss caused to him by the conduct of the
promisor himself or by the conduct of any other
person is called a contract of indemnity. [Sec 124] 16
 If a person who is interested in the payment of
money which another is bound to pay and pays it, he
is entitled to be indemnified. [Sec 69]
The surety has a rights to claim indemnity from the
principal debtor for sums he has rightfully paid
towards the guarantee. [Sec 145]
The principal is liable to indemnify the agent for all
amount paid by him during the exercise of his
authority. [Sec 222]
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 Rights of indemnity holder [Sec 125]

All damages that he may be compelled to pay in a

suit in respect of any matter to which the promise to
indemnify applies.
All cost that he may be compelled to pay in bringing
or defending such suit.
All sums which he may have paid under the terms of
any compromise of any such suit.

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 Contract of Guarantee
A contract of guarantee is essentially a contract
to perform the promise or
discharge the liability of a third person
in case of his default.
The basic function of a contract of guarantee is
to enable a person to get a loan, or goods, or an
employment. [Sec 126]

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 Essential features of guarantee
Surety.
Principal Debtor.
Creditor.
Not be vitiated by incapacity, flaw in consent, and
unlawful character of the agreement.
May be oral and it may either be expressed or
implied.
Concurrence of parties.
Existence of Principal debt.
Essential of a valid contract like Consideration and
Free consent. 20
 Extent of surety's liability
The liability of surety is coextensive with that of the
principal debtor. [Sec 128]
The Surety may limit his liability by an express
agreement.
The liability of the surety arises immediately when a
default is made by the principal debtor.
The creditor can sue the surety without suing the
principal debtor.
If the guarantee is conditional upon another person
joining it as co-surety, the guarantee is not valid if
that person does not join. [Sec 144]
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 Kinds of Guarantees
Specific guarantee extends to a specific transaction
or a single debt.
The liability of surety comes to an end when the
guaranteed debt is duly discharged.
Continuing guarantee extends to a series of
transaction.
This kind of guarantee is intended to cover a number
of transactions over a period of time.
Whether the guarantee is continuing guarantee or
not is a question of intention, subject matter &
circumstance. 22
 Revocation of Continuing
Guarantee
By Notice
By Death of Surety
By Novation. (Sec 62)
By variance in the terms of contract. (Sec 133)
By release or discharge of principal debtor.
By compounding with the principal debtor.
(Sec 135)
By creditor's act or omission imparting surety's
eventual remedy. (Sec 139)
By loss of security. (Sec 142)
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 Discharge of Surety
By Revocation of Guarantee
Discharge by conduct of creditor
Variance in the terms of the contract
Release or discharge of principal debtor
Compounding by creditor with principal debtor
Creditor compounding with principal debtor
Creditor promising to give time to the principal
debtor
Creditor agreeing not to sue the debtor.
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 By impairing surety's remedy
Loss of security by the creditor
Discharge of surety by invalidation of contract
Guarantee obtained by misrepresentatio
Guarantee obtained by concealment
Guarantee on contract that creditor shall not act on
it untill a co-surety joins
Failure of consideration

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 Finder of Goods
A person who finds goods belonging to another and
takes them into his custody,
is subject to the same responsibilities as a bailee.
[Sec 71]
He must take reasonable care.
He must not use the goods for his own purpose.
He must not mix goods with his own.
He must try to find out the owner of the goods.
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 Rights of Finder of Goods

Right of lien.
Right to sue for rewards.
Right of sale.

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 Contract of Agency
An agent is a person employed to do any act for
another, or
to represent another, in dealings with third persons.
The person for whom such act is done or who is so
represented, is called the principal."
Whatever the principal can do himself, he may get
the same done through an agent,; and
What the principal does by another, he does it
himself.
The acts of the agents are the acts of the principal. 28
 Creation of Agency
By Agreement
- Express Agreement.
- Implied Agreement.
Implied agency includes the following
Agency by Estoppel.
Agency by holding out.
Agency by necessity
Agent acceding his authority in an emergency.
A person entrusted with another's property.
Husband and Wife.
Agency by ratification. 29
 Essentials of a valid ratification
The agent must act for an identifiable principal.
The principal must be in existence.
The principal must have contractual capacity.
Ratification must be with full knowledge of facts.
Ratification must be done within a reasonable time.
The act to be ratified must not be void, illegal or ultra
vires.
The whole transaction must be ratified.
Ratification can be of the acts the principal had
power to do.
Ratification should not put a third party to damages.
Ratification relates back to the date of the act. 30
 Duties of Agents
To carry out the work according to the directions of
principal.
To carry out the work with reasonable care, skill and
diligence.
To render proper accounts.
To communicate with the principal in case of
difficulty.
Not to deal on his own account.
To pay sums received for the principal.

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 To protect the interest of the principal in case of his
death or insolvency.
Not to use information obtained in the course of
agency against the principal.
Not to make secret profit.
Not to set up an adverse title.
Not to put himself in a position where his interest
and duty conflict.
Not to delegate authority.
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 Rights of Agents
Right of retainer.
Right to receive remuneration.
Right of lien.
Right of indemnification.
Right of compensation.
Right of stoppage in transit.

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 Delegation of Authority
Delegatus non potest delegar
A Sub-agent is a person employed by and
acting under the control of the original agent and the
business of the agency. [Section 191]
A agent may appoint a sub-agent if -
There is a custom of trade.
The nature of work is such that sub-agent is necessary.
Where the principal is aware of the intention of the
agent to appoint a sub-agent.
Where unforeseen emergencies arise rendering.
Where the act to be done is purely ministerial.
Where the principal permits appointment of sub-
agent. 34
 Effect of appointment of sub-agent
[Section 192 and 193]
Where a sub-agent is properly appointed, the
following effect follows :
the principal is bound by the acts of the sub-agent;
the agent is responsible to the principal for the acts
of the sub-agent;
the sub-agent is responsible for his acts to the agent,
but not to the principal, except in case of fraud or
willful wrong.
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 Where the sub-agent is not properly appointed,
the effect will be :
the principal is not bound by the acts of sub-
agent;
the original agent is responsible for the acts of
the sub-agent both to the principal and to he
third party;
the sub-agent is responsible for his acts to the
original agent but not to the principal even in
case of fraud or willful wrong.
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 Position of Principal and Agent in
relation to third parties
Named principal
Acts of the agent are the acts of the principal.
When the agent exceed his authority
Notice given to agent as notice to principal.
Principal inducing belief that agent's unauthorised
acts were authorised.
Misrepresentation or fraud of agent.
Unnamed principal
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Undisclosed principal
The position of Principal contracting party may sue
either the principal or the agent or both.
The principal may also require the performance of
contract.
The position of agent as between the principal and
agent, the agent has all the rights of an agent as
against the principal;
but as regards the third party, he is personally liable
on the contract.
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 The position of third parties
the third party may elect to sue either the principal
or the agent or both.
If the principal discloses himself before the contract
is completed, the other party may refuse to fulfill the
contract on the ground of mistake of identity of
party.
The third party can also claim a right of set-off
against the agent.
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 Personal Liability of an Agent -
Exceptions [Sec 230]
When the contract expressly provides.
When the agent acts for a foreign principal.
When he acts for an undisclosed principal.
When he acts for a principal who cannot be sued.
Where he signs a contract in his own name.
Where he acts for a principal not in existence.
Where he is liable for breach of warranty of
authority.
Where he receives or pays money by mistake or
fraud.
Where his authority is coupled with interest.
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 Termination of agency [Sec 201]
Termination of agency by act of parties
a) Agreement.
b) Revocation by the principal.
c) Revocation by agent.
Termination of agency by operation of law
a) Performance of contract.
b) Expiry of time.
c) Death or Insanity.
d) Insolvency.
e) Destruction of subject matter.
f) Principal becoming an alien enemy.
g) Dissolution of a company. 41