Business law notes School of Management Studies , CUSAT , Kochi

1. Performance of Contract

2. Performance of contract means fulfilment of the legal obligations
created by the contract.
Sec 37 of the Act says
The parties to the contract must either
a. Perform
b. Offer to perform their respective promises unless
a. Such performance is dispensed with
b. Or excused under the provisions of this Act or any other law

3. Contract which need not be performed
• If the parties substitute a new contract or rescind/alter it – original
contract need not be performed (Sec 62)
• When a voidable contract is rescinded, the other party need not
perform (Sec 64)
• Every promisee may dispense with or remit wholly or in part the
performance of the promise made to him or may extend time for
such performance or may accept instead of it any satisfaction which
he thinks fit (Sec 63)
• If the promisee neglects or refuse to afford promisor reasonable
facilities for the performance of the promise, the promisor is excused
for non performance (Sec 67)

4. Who should perform a contract
• The promisor himself
• Promises depending on personal skill should be performed by the person himself
• The agent
• In contracts not having personal consideration, agents may be appointed for the
purpose
• The legal representative
• If the promisor dies before performance, except in case of personal skills or
consideration passes on to legal representative
• The third person
• When the promisee accepts performance of promise from a third person
• The joint promisors
• More than one promisors- promisee can compel one or more of joint promisors for
performance

5. Assignment of contracts
• Transfer of rights and liabilities under a contract to a third party is
known as assignment of contract
• The assignment may be
• By the act of the parties
• Contract involving personal ability or skill cannot be assigned
• By operation of law
• Death – rights and liabilities are assigned to legal heirs and representatives
• Insolvency- rights and liabilities are assigned to the official receiver or
assignee

6. Time and place of performance
• the promisor has to perform without application by the promisee,
• Sec 46. Performance within a reasonable time: If no time is specified the
contract, and it should be performed within a reasonable time
• Sec 47 Performance of contract wherein time is specified
• Where the promise has to be performed on a specified day- it shall be carried during the
business hours
• Sec. 49. No place is fixed for performance, then promisor has to apply to
promisee to appoint a place for performance
• Sec 50. Performance as prescribed by the Promisee – place and time
prescribed by promisee

7. Time as the Essence of Contract
• Time is the essential element and the concerned parties must
perform the promise within the specified time
• Transactions for which time is the essence
• Where parties have expressly agreed to treat time as essence of contract
• Where delay in performing contract operates as an injury to the party
• Where the nature and necessity of the contract requires time to be the
essence of the contract
• Eg.Time is the essence in case of Sale or purchase of goods while in Sale of immovable
property-time is not the essence

8. Provisions in the contract Act regarding time
• It time is the essence: if the contract is not performed before the
specified time- voidable at the option of the innocent party
• When performance is accepted at any time other than agreed upon
• If time is the essence of the contract and promisee accepts the performance
of the promise after a fixed time than agreed upon- he cannot further claim
compensation for any loss due to non performance at agreed time
• When time is not the essence of contract- the contract is not
voidable, but the if the promisor fails to perform within a specified
time, promisee is not entitled to avoid the contract- he can claim the
compensation due to such failure

9. Performance of reciprocal promises
• Promises which form the consideration or part of the consideration
for each other
• Promise supported by another promise
• Types of reciprocal promises
• Mutual and independent
• Mutual and dependent
• Mutual and concurrent

10. Mutual and independent
• Where the order in which contract is to be performed is expressly
fixed by the contract, they shall be performed in that order, and the
promises are mutual and independent.
• Eg: A and B contract that A shall build a house for B at a fixed price on
fixed date. A’s promise to build the house must be performed before
B’s promise to pay for it.

11. Mutual and dependent
• 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.
• Eg: A promise B to construct B’s house provided B supplies cement
and bricks. This is a dependent promise

12. Mutual and concurrent
• Where the two promises are to be performed simultaneously.
• Eg: A & B contract that A shall deliver goods to be paid for by B on
delivery. Here A need not deliver the goods unless B is ready and
willing to pay for the goods on delivery and vice versa.

13. Discharge of contracts

14. • Discharge of contract means termination of the contractual relations
between parties to the contract
1. By performance
2. By agreement
3. By impossibility of performance
4. By lapse of time
5. By operation of Law
6. By breach of contract

15. By performance
• By Actual performance
• By attempted performance

16. Actual performance
• When both parties perform the exact thing which each has agreed to
do under contract
• If one party performs and other does not- he alone is discharged and
can take action against the other party

17. Attempted performance
• Also known as offer for performance /tender
• Willingness of the party to perform is called attempted performance
• If this offer is not accepted by the other party, his liability for
performance ends though rights continue, he can bring an action
against breach of contract. Sec 38

18. 2. Discharge by agreement
• Discharged at the mutual agreement between parties
• Two types
• Express consent at the Time of formation of agreement
• Eg. Return of goods within a week, if not satisfied
• Express consent subsequent to formation of contract
• If the parties make fresh contract in place of original contract, it can be
considered discharged

19. Types of fresh agreements
1. Novation: substitution of the new contract for the existing one-
either by changing the parties or without changing parties- novation
should be done before the expiry of the time of performance of the
original contract
• A is a debtor or B and B is indebted to C. By mutual agreement
between A, B and C, A’s debt with B and B’s debt with C is cancelled
and C accepts A as debtor.
• A owes B Rs. 10000. A enters into an agreement and mortgages his
estate for Rs. 10000 in place of the debt for extending the period of
repayment. This is a new contract

20. 2. Rescission: cancellation of the contract- releases the parties of the obligations
• Rescission may take place in following modes
• By mutual consent
• By the aggrieved party- in case of breach of contract
• By the party whose consent is not free
• Non performance till a long time
3. Alteration
• change in one or more material terms of the contract-legal effects of the contract are varied
• Eg. Machine delivery is extended from 1st Feb to 1st March. This alters the contractual terms
4. Remission
• Acceptance of lesser sum than what was contracted for
• Eg. A owes B Rs. 2000. C pays B Rs. 1000 and B accepts that in satisfaction of the claim on A
5. Waiver: abandonment of a right person is entitled to. The other party is relieved of
his obligation
• Eg. A agrees to repair car of B. Later B forbids to repair the car. A is no longer bound to perform the
promise
6. Merger: takes place when an inferior right accruing to a party under contract merges
into superior right accruing to the same party
Eg. A purchases a house where he was residing on lease. His rights change from
that of lessee to owner

21. 3. Discharge by impossibility of performance
• A contract is discharged if performance becomes impossible
• Initially impossible
• Impossibility at the time of formation of the contract..it is a void contract
• Subsequent impossibility- performance becomes impossible due to reasons
beyond control or becomes unlawful
• Cases where the subsequent impossibility applies
• Destruction of subject matter
• Death or personal incapacity
• Change of law
• Declaration of war
• Failure of pre condition

22. 4. Discharge by lapse of time
• Limitation Act of 1940 lays down that in case of breach of contract,
action should be taken within a specified period
• Period of simple contract is 3 years
• If the creditor fails to file a suit to recover his amount in three years,
the debtor is discharged from the liability

23. 5. Discharge by operation of law
• Under the following conditions the law regards contract as discharged
• Unauthorised material alteration- material alteration in a written
document without the consent of the parties- contract becomes void
• Death : Death of the promisor results in termination of the contract in
cases involving personal skill and ability. Other wise the rights and
liabilities passes on to the legal representatives
• Insolvency: when one of the parties are adjudicated insolvent
• Merger : when an inferior right accruing to a party under contract
merges into superior right accruing to the same party

24. 6. Discharge by the breach of contract
• Breach of contract is the failure of the party to perform his obligations
• Actual breach of contract
• A. when performance is due: when one party fails /refuses to perform his obligation
under contract( if time is the essence of contract- breach of contract or else the
other party may accept performance and claim compensation for delayed
performance)
• B. actual breach during the performance: happens in instalment contracts such as
sale of goods, delivery by instalments and payment by instalments
• Anticipatory breach of contract
• Before the performance, the promisor refuses to perform his obligations thus occurs
a breach of contract
• Consequences of anticipatory breach
• He can treat contract as discharged so that he is no longer bound by any obligations in the
contract
• He can file suit for damages

25. Remedies for breach of contract

26. • When one of the parties do not perform his promise, he is said to
have committed a breach of contract.
• The aggrieved party has the following remedies
1. Suit for rescission
2. Suit for damages
3. Suit upon quantum meruit
4. Suit for specific performance
5. Suit for injunction

27. 1. Suit for rescission
• (i) Rescission of contract:
• Setting aside or cancelling a contract
• When the contract is broken by one party, the other party may treat the
breach as discharge and refuse to perform his part (rescind the contract)
• Eg . A promises to sell his car for Rs. 70000 to B on a certain date. B agrees to pay
money on receipt of the car. A refuses to sell his car, B need not pay the money.
• Aggrieved party can claim for the damages caused by non fulfillment of
contract
• Party rescinding the contract may be bound to restore the advantage has
received under the contract

28. 2. Suit for damages
• Monetary compensation allowed to the injured party
• (1) Ordinary damages: the actual loss suffered by the party.
• The measure of ordinary damage for sale of goods is the difference between
the contract price and market price on the date of breach
• (2) Special damages: Indirect losses suffered by the aggrieved party
due to breach of contract. To claim special damages, special or extra
ordinary circumstances must be present which may be communicated
to the other party
• Eg. A promises to build house for B. B contracts with C to let it by January and
informs that to A. In Jan due to lapse in construction the house collapses. B
can claim damages of cost of building, loss of rent and damages paid to C for
breach of contract.

29. • 3. Exemplary or punitive damages: it is given for injured feeling or
suffering
• Eg. Dishonour of a cheque by the banker when there is sufficient funds in the
account. Smaller the amount of the cheque, greater the damage.
• 4. Nominal damages
• Very small damages. Nominal damages are allowed to recognise the right of
the party, eventhough the party has not suffered loss from the breach of
contract.

30. 3. Suit upon quantum meruit
• Payment in proportion to the amount of work done or reasonable
value of work done.
• When the original contract has been terminated by breach of contract
by one party or become void for some reason, the person may claim
payment for work done or goods already supplied
• Eg. A had been appointed as MD of the company by the BOD who
was found unqualified later on. The contract entered into by BOD
became void. A is entitled to the remuneration for work done on the
basis of quantum meruit.

31. 4. Suit for specific performance
• When damages are not the adequate remedy for the breach of
contract, the court may direct the party in breach to carry out his
promise according to terms of contract.
• Specific performance is granted under the following circumstances
• When monetary consideration is not an adequate remedy for breach of
contract
• No standard for ascertaining the actual damage caused by non performance
• When compensation in money cannot be obtained

32. 5. Suit for Injunction
• Order of the court restraining a person from doing a particular act. It is a
mode of securing specific performance on negative terms of contract.
• Eg. A agrees to purchase raw materials from B company only. On breach of
contract, B applies for injunction, restraining A from purchasing raw
materials from any other company other than B