Performance of Contract, Termination & Remedies for Breach
1. Performance of Contract & Tender of Performance
Performance of a contract takes place when the parties fulfill their reciprocal obligations within the stipulated time and manner (Section 37). Performance can be:
- Actual Performance: When both parties carry out their respective promises completely.
- Attempted Performance (Tender - Section 38): When the promisor offers to perform but the promisee refuses to accept. A valid tender discharges the promisor from non-performance liability.
2. Modes of Discharge (Termination) of Contract
Novation (substitution of new contract), Rescission (cancellation), Alteration (modifying terms), or Remission (accepting lesser fulfillment - Sec 63).
Doctrine of Frustration: Destruction of subject matter (Taylor v. Caldwell), death or personal incapacity, outbreak of war, change of law.
If not enforced within the period prescribed by the Limitation Act (generally 3 years for debt recovery), the legal remedy is barred.
Actual Breach (refusal on due date) or Anticipatory Breach (repudiation before due date - Sec 39).
3. Legal Remedies for Breach of Contract
When a breach of contract occurs, the injured party is entitled to the following five classical legal remedies:
4. Liquidated Damages vs. Penalty (Section 74)
In English law, Liquidated Damages (genuine pre-estimate of loss) are enforceable, while a Penalty (punitive deterrent sum) is void. In Indian law, Section 74 abolishes this rigid distinction: courts award only reasonable compensation not exceeding the stipulated penalty amount, based on actual loss suffered.
6. Landmark Legal Precedent: Hadley v. Baxendale (1854)
Facts: Hadley, a mill owner, delivered a broken crankshaft to Baxendale (carrier) to be transported to Greenwich engineers as a pattern for casting a new one. The carrier delayed delivery by neglect. Because the mill was completely stopped without the shaft, Hadley lost substantial profits and sued the carrier for the lost profits.
Held: The carrier was not liable for loss of mill profits because Hadley had not informed Baxendale that the mill was idle and that shaft delay would cause mill stoppage. The court laid down the universal rule codified in Section 73: Damages are limited to (1) those arising naturally in the usual course, or (2) those reasonably in contemplation of both parties at the time of contract.
7. Solved AKTU Previous Years Questions (PYQs)
Q1: What is the Doctrine of Frustration of contract?
Answer: Under Section 56 of the Indian Contract Act, the Doctrine of Frustration applies when an unforeseen supervening event beyond the control of both parties occurs after contract formation, rendering performance physically or legally impossible, or destroying the foundational commercial purpose. The contract automatically becomes void and both parties are discharged.
Q2: Discuss the various modes of discharge of contract. What remedies are available to an aggrieved party in the event of a breach of contract? Explain with reference to Hadley v. Baxendale.
Model Answer Structure for Full 10 Marks:
- Introduction: Define discharge of contract as the termination of contractual obligations between parties.
- Modes of Discharge:
- Discharge by performance (actual performance and valid tender).
- Discharge by mutual consent (novation, rescission, alteration, remission).
- Discharge by supervening impossibility/frustration (destruction of subject matter, government ban).
- Discharge by breach (anticipatory vs actual).
- Discharge by operation of law and lapse of limitation time.
- Remedies for Breach of Contract:
- Suit for ordinary and special damages (Section 73). Detailed facts and ratio of Hadley v. Baxendale.
- Rescission of contract (Section 75).
- Suit for Quantum Meruit ("as much as earned").
- Specific performance and injunction orders under the Specific Relief Act.
- Conclusion: Contractual remedies aim to place the aggrieved party in the financial position they would have occupied had the contract been performed.
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