Discharge of Contract

DISCHARGE OF
CONTRACT
By-
PRAVEEN B
Assistant Professor,
Department of Commerce and Management,
PES Institute of Advanced Management
Studies, Shivamogga

DISCHARGE OF CONTRACT
When an agreement, which was binding
on the parties to it, ceases to bind them,
the contact is said to be discharged. A
contract may be discharged in the
following ways:
1. By Performance of the contract ;
2. By breach of the contract ;
3. By impossibility of performance ;
4. By Agreement.

1. DISCHARGE BY PERFORMANCE
Under a contract each party is bound to
perform his part of the obligation. After the
parties have made due performance of the
contract, their liability under the contract
comes to an end. In such a case the
contract is said to be discharged by
performance.

2. DISCHARGE BY BREACH OF CONTRACT
When a party having a duty to perform a contract fails to do
that, or does an act whereby the performance of the contract
by him becomes impossible, or he refuses to perform the
contract, there is said to be a breach of contract on his part. On
the breach of contract by one party, the other party is
discharged from his obligation to perform his part of the
obligation, and he also gets a right to sue the party making the
breach of contract for damages for the loss occasioned to him
due to the breach of contract. The breach of contract may be
either actual, i.e., non-performance of the contract on the due
date of performance, or anticipatory, i.e., before the due date of
performance has come. For example, A is to supply certain
goods to B on 1st January. On 1st January A does not supply
the goods. He has made actual breach of contract. On the
other hand, if A informs B on 1st December that he will not
perform the contract on 1st January next, A has made
anticipatory breach of contract

ANTICIPATORY BREACH OF CONTRACT
It means the repudiation of a contract by one party to it
before the due date of its performance has arrived.
Section 39, which contains law relating to anticipatory
breach of contract is 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.”
Anticipatory breach of contract could be made by
promisor, either by refusing to perform the contract, or
disabling himself from performing the contract in its
entirety, before the due date of performance has arrived.
When the refusal to perform the contract in its entirety is
not there, it is not to be considered to be a case of
anticipatory breach within the meaning of section 39.

In West Bengal Financial Corporation Vs. Gluco Series
AIR 1973 Cal., A granted a loan to B amounting to Rs.
4,38,000 and also agreed to grant a further loan of Rs. 1,
62,000 at its discretion, provided that B made the
repayment of the loan in accordance with the agreement at
the rate of Rs. 60,000 every year. B failed to make the
repayment as agreed. B insisted that A should grant further
loan of Rs. 1,62,000 to him, but A did not grant further loan
because B did not make the repayment of loan as agreed.
B’s contention was that A had failed tom perform the
contract by not advancing further loan, which should be
considered to be breach of contract. It was, however, held
that A had already advanced some loan, which B had
accepted, there cannot be said to be a refusal on A’s part
to performance of the contract in its entirety. B was
therefore not entitled to put an end to the contract on the
ground of breach of contract on the part of A .

The position is further explained by illustration (b) to
section 39, which is under:
A, a singer, enters into a contract with B , the manager
of a theatre to sing at his theatre two nights in every
week during the next two months, and B agrees to pay
her 100 rupees for each night’s performance. On the
sixth night A wilfully absents herself from the theatre. B
is at liberty to put an end to the contract.
The above illustration to section 39 may create a
misapprehension that in this case absenting on one of
the nights is only partial refusal to perform the contract
and not failure to perform the contract in its entirety. In
Sooltan Chund Vs. Schiller (1879) it was observed
that even absence on one night in this illustration is
breach of the contract in its entirety.

EFFECT OF ANTICIPATORY BREACH OF CONTRACT
When the promisor has made anticipatory breach of
contract, “the promisee may put an end to the contract,
unless he has signified by words or conduct his
acquiescence in its continuance.”
It means that on the breach of contract by one party, the
other party has two alternatives open to him, viz.,
(i) He may rescind the contract immediately, i.e., he may
treat the contract as an end, and may bring an action for
the breach of contract without waiting for the appointed
date of the performance of the contract,
(ii) He may not put an end to the contract but treat it as
still subsisting and alive and wait for the performance of
the contract on the appointed date.

EFFECT OF ANTICIPATORY BREACH OF CONTRACT
(i) ELECTION TO RESCIND THE CONTRACT
When the promisee accepts the repudiation of
the contract even before the due date of
performance, and elects to treat the contract at
an end, he is discharged from his obligation to
perform the contract, and also gets a right to
bring an action for the breach of contract, if he
so likes, even before the due date of
performance has arrived.

(i) ELECTION TO RESCIND THE CONTRACT
In Hochester Vs. De La Tour (1853) the Defendant engaged the
plaintiff on 12th April, 1852, as a courier to accompany him on the
tour of Europe. The tour was agreed to begin on 1st June, 1852 and
the plaintiff was to be paid £ 10 per month for his services. On 11th
May, 1952 the defendant wrote to the plaintiff informing him that he
has changed his mind and declined to take the services of the
plaintiff. On 22nd May, 1852, the plaintiff brought an action against
the defendant for the breach of contract. The defendant contended
that there could be no breach of contract before 1st June. It was
held that a party to an executory contract may make a breach of
contract before the actual date of performance, and the plaintiff, in
such a case, is entitled to put an end to the contract and he can
bring an action even before the actual date of performance has
arrived. The plaintiff’s action therefore succeeded.
In Frost Vs. Knight (1872) the defendant promised to marry the
plaintiff on the defendant’s father’s death. While defendant’s father
was, still alive, he renounced the contract. The plaintiff did not wait
till the defendant’s father’s death and immediately sued him, and
she was successful in her action.

(ii) ELECTION TO KEEP THE CONTRACT ALIVE
Anticipatory breach of contract by one party does not automatically
put an end to the contract. It has already been noted above that on
the anticipatory breach by one party the other party can exercise the
option either to treat the contract at an end, or, to treat it as still
subsisting until the due date of performance comes. As pointed out by
the Supreme Court in the case of State of Kerala Vs. Cochin
Chemical Refineries, AIR. 1968, “Breach of contract by one party
does not automatically terminate the obligation under the contract :
the injured party has the option either to treat the contract as still in
existence, or to regard himself a discharged. If he accepts the
discharge of the contract by the other party, the contract is at an end.
If he does not accept the discharge, he may insist on the
performance.”
When the contract is kept alive by the promisee, the promisor may
perform the same, in spite of the fact that he had earlier repudiated it.
If the promisor still fails to perform the contract on the due date, the
promisee will be entitled to claim compensation on the basis of the
breach of the contract on the agreed date of performance.

Illustration
A, a singer, enters into a contract with B, the
manager of a theatre, to sing at his theatre two
nights in every week during the next two months,
and B engages to pay her at the rate of 100
rupees for each night. On the sixth night A
wilfully absents herself. With the assent of B, A
sings on the seventh night. B has signified his
acquiescence in the continuance of the contract,
and cannot now put an end to it, but is entitled to
compensation for the damage sustained by him
through A’s failure to sing on the sixth night

The case of Avery Vs. Bowden (1855) illustrates the point where the
promisee elects to keep the contract alive, and the promisor in spite of
his earlier repudiation of the contract is discharged from liability
because of supervening circumstances before the date of the
performance arrives. In this case, A chartered B’s ship at Odessa, a
Russian port, and undertook to load the ship with cargo within 45 days.
Before this period had elapsed, A failed to supply the cargo and
declined to supply the same. The master of the ship continued to insist
that the cargo be supplied but A continued to refuse to load. Before
the period of 45 days was over, Crimean War broke out between
England and Russia, whereby it became illegal to load cargo at a
hostile port. The question in this case was, whether by declaration of
the war A had been discharged from liability to load the cargo. In this
case, on A’s refusal to load the cargo B could have rescinded the
contract and brought an action against A, but B instead, by insisting
that the cargo be supplied, kept the contract alive. The contact
continued to be alive and subsisting for the benefit of both A and B. By
the declaration of war, the performance of the contract having become
unlawful, it was held that A had been discharged from his duty to
supply the cargo, and, therefore, A could not be made liable for non-
performance of the contract.

3. DISCHARGE BY IMPOSSIBILITY OF
PERFORMANCE
Both under the English and Indian law a contract
the performance of which is impossible the same
is void for that reason.
Section 56, which deals with this question,
mentions two kinds of impossibility.
Firstly, impossibility existing at the time of the
making of the contract.
Secondly, a contract which is possible of
performance and lawful when made, but the
same becomes impossible or unlawful thereafter
due to some supervening event.

1. INITIAL IMPOSSIBILITY
An agreement to do an act impossible in itself is
void. The object of making any contract is that
the parties to it would perform their respective
promises. If a contract is impossible of being
performed., the parties to it will never be able to
fulfil their object, and hence such an agreement
is void. For example, A agrees with B to
discover treasure by magic. The performance of
the agreement being impossible, the agreement
is void. Similarly, an agreement to bring a dead
man to life is also void.

2. SUBSEQUENT IMPOSSIBILITY
The performance of the contract may be
possible when the contract is entered into but
because of some event, which the promisor
could not prevent, the performance may become
impossible or unlawful. Section 56 makes the
following provision regarding the validity of such
contracts :
“A contract to do an act which after the contract
is made, becomes impossible, or by reason of
some event which the promisor could not
prevent, unlawful, becomes void when the act,
becomes impossible or unlawful.”

2. SUBSEQUENT IMPOSSIBILITY
It means that every contract is based on the assumption that the
parties to the contract will be able to perform the same when the due
date of performance arrives. If because of some event the
performance has either become impossible or unlawful, the contract
becomes void. Section 56 explains this point with the help of following
illustrations:
A and B contract to marry each other. Before the time fixed for
marriage, A goes mad. The contract becomes void.
A Contracts to take in cargo for B at a foreign port. A’s Government
afterwards declares war against the country in which the port is
situated. The contract becomes void when war is declared.
A contracts to act at a theatre for six months in consideration of a sum
paid in advance by B. On several occasions A is too ill to act. The
contract to act on those occasions becomes void.

THE DOCTRINE OF FRUSTRATION
When the performance of the contract
becomes impossible, the purpose which
the parties have in mind is frustrated.
Because of a supervening event when the
performance becomes impossible, the
promisor is excused from the performance
of the contract. This is known as doctrine
of frustration under the English law, and is
covered by section 56 of the Indian
Contract Act

The basis of the doctrine of frustration was explained by
Mukerjea J. in the Supreme Court decision of Satyabrata
Ghose Vs. Mugneeram (1954)m in the following words :
“ The essential idea upon which the doctrine (of
frustration) is based is that of impossibility of performance
of the contract ; in fact impossibility and frustration are
often used as interchangeable expressions. The changed
circumstances make the performance of the contract
impossible and the parties are absolved from the further
performance of it as they did not promise to perform an
impossibility …….. The doctrine of frustration is really an
aspect or part of the law of discharge of contract by
reason of supervening impossibility or illegality of the act
agreed to be done and hence comes within the purview of
section 56 of the Contract Act.”

In Taylor Vs. Caldwell (1863) It was held that when
the contract is positive and absolute, but subject to an
express or implied condition, e.g., a particular thing shall
continue to exist, then in such a case, if the thing ceases
to exist, the parties are excused from performing the
contract. In this case A agreed with B to give him the
use of a music hall and gardens for holding concerts on
four different dates. B agreed to pay a rent of £ 100 for
each of the four days. Before the date of performance
arrived, the music hall was destroyed by fire. B sued A
for the breach of the contract. It was held that the
perishing of the hall without any fault on the part of A
had made the performance of the contract impossible
and, therefore, A was not liable for the non-performance
of the contract.

In Har Prasad Chaubey Vs. Union of India !973 S.C. the
appellant was the highest bidder for slack coal belonging to
the respondents’ railways. The appellant made full payment
for the same. When he applied for the wagons for
transporting the coal to Ferozabad, the same was refused by
Coal Commissioner on the ground that the coal was meant to
be consumed locally only. No such condition existed when
the auction of the coal was made. The appellant then filed
suit for the refund of the amount paid by him and also interest
on the amount on the ground that the contract had become
frustrated after the permission to transport the coal was
refused. Appellants claim was accepted and he was allowed
the refund of the money. The reason for the decision was that
the refusal of the Coal Commissioner to allow the movement
of the coal to Ferozabad, in spite of the fact that no such
condition was there at the time of the auction, had frustrated
the contract.

CONTRACT NOT FRUSTRATED BY MERE
COMMERCIAL DIFFICULTY
Merely because the procurement of the
goods becomes difficult because of a
strike in the mill, or there is a rise in prices,
or a person will not be able to earn the
expected amount of profits, is not enough
to frustrate the contract.

In Ganga Saran Vs. Ram Charan, (AIR 1952 S.C.) the defendant
agreed to supply 61 bales of cloth of certain specifications
manufactured by the New Victoria Mills, Kanpur, to the plaintiff. The
agreement by the defendant stated: “We shall continue sending
goods as soon as they are prepared to you upto 17-11- 47. We shall
go on supplying goods to you of the Victoria Mills as soon as they
are supplied to us by the Mill.” As the Mills did not supply the goods
to the defendant, he did not supply any cloth to the plaintiff. In an
action by the plaintiff for damages for the non-performance of the
contract, the defendant contended that the contract had been
frustrated by the circumstances beyond his control. It was held the
delivery of the goods was not contingent on the supply of goods by
the Victoria Mills, and therefore, the contract had not been frustrated
by the non-supply of goods to the sellers, by the particular Mills.
It was observed:
“The agreement does not seem to us to convey the meaning that
delivery of the goods was made contingent on their being supplied
to the respondent firm by the Victoria Mills. We find it difficult to hold
that the parties ever contemplated the possibility of goods not being
supplied at all. The words “prepared by the Mill” are only a
description of the goods to be supplied, and the expressions “as
soon as they are prepared” and “as soon as they are supplied to us
by the said Mill” simply indicate the process of delivery …. That
being so, we are unable to hold that the performance of the contract
had become impossible”

RESTORING BENEFIT ON SUBSEQUENT
IMPOSSIBILITY
It has already been noted above that when, due to the
happening of some event, the performance of the contract
becomes impossible or unlawful the contract becomes
void. Each party is discharged from its obligation to
perform the contract. It is just possible that before the
contract becomes void, one of the parties may have
already gained some advantage under the contract. Such
benefit received by a party has to be restored to the other.
The relevant provision contained in section 65, which
permits such restoration of the benefit, is as under:
“When an agreement is discovered to be void, or when a
contract becomes void, any person who has received any
advantage under such agreement or contract is bound to
restore it, or to make compensation for it, to the person
from whom he received it”

Illustrations
(a) A Pays B 1,000 rupees, in consideration of B’s
promising to marry C, A’s daughter. C is dead at
the time of the promise. The agreement is void, but
B must repay A the 1,000 rupees.
(b) A contracts with B to deliver to him 250 maunds of
rice before first of May. A delivers 130 maunds
only before that day, and none after. B retains the
130 maunds after the first of May. He is bound to
pay A for them.
(c) A, a singer, contracts with B, the manager of a
theatre, to sing at his theatre for two nights in every
week during the next two months, and B engages
to pay her a hundred rupees for each night’s
performance. On the sixth night, A wilfully absents
herself from the theatre, and b, in consequence
rescinds the contract, b must pay a for the five
nights on which she has sung.

(4) DISCHARGE BY AGREEMENT AND
NOVATION
Section 62 and 63 deals with contracts in which the
obligation of the parties to it may end by consent of the
parties.
Novation
Novation means substitution of an existing contract with
a new one. When, by an agreement between the parties
to a contract, a new contract replaces an existing one,
the already existing contract is thereby discharged, and
in its pace the obligation of the parties in respect of the
new contract comes into existence. Section 62 contains
the following provision in this regard:

“62. EFFECT OF NOVATION, RESCISSION
AND ALTERATION OF CONTRACT –
If the parties to a contract agree to
substitute a new contract for it or rescind or
alter it, then original contract need not be
performed,”
Novation is of two kinds :
(i) Novation by change in the terms of the
contract, and
(ii) Novation by change in the parties to the
contract

(i) CHANGE IN THE TERMS OF
THE CONTRACT
Then parties to a contract are free to alter the contract
which they had originally entered into. If they do so, their
liability as regards the original agreement is extinguished,
and in its place they become bound by the new altered
agreement. For example, A owes B 10,000 rupees. A
enters into an agreement with B , and gives B a
mortgage of his (A’s) estate for 5,000 rupees in place of
the debt of 10,000 rupees. This is a new contract and
extinguishes the old. In this illustration the parties to the
contract remain the same but there is a substitution of a
new contract with altered terms in place of the old one. It
may be noted that novation is valid when both the parties
agree to it. As the parties have a freedom to enter into a
contract with any terms of their choice, they are also free
to alter the terms of it by their mutual consent.

(ii) CHANGE IN THE PARTIES
TO THE CONTRACT
It is possible that by novation an obligation may be created for one party in
place of another. If under an existing contract A is bound to perform the
contract in favour of B , the responsibility of A is bound to perform the
contract in favour of B, the responsibility of A could be taken over by C.
Now instead of A being liable towards B, by novation C becomes liable
towards B . For example, A owes money to B under a contract. It is
agreed between A, B and C that B shall thenceforth accept C as his
debtor, instead of A. The old debt of A to B is at end and new debt from
C to B has been contracted.
It may be noted here that in such cases there should be consent of all the
three persons, viz., the person who wants to be discharged from the
liability, the person who undertakes to be liable in place of the person
discharged, and the person in whose favour the performance of the
contract is be liable to be made. Thus, if A and B agree that in place of A,
now C will be liable, but C does not consent to it, there would be no
novation. For example, A owes B 1,000 rupees under a contract. B owes
C 1,000 rupees. B orders A to credit C with 1,000 rupees in his books, but
C does not assent to the agreement. B still owes C 1,000 rupees and no
new contract has been entered into.

(ii) CHANGE IN THE PARTIES
TO THE CONTRACT
The working of the doctrine of novation has been explained by
Lord Selborne in Scarf Vs. Jardine in the following words:
“That, there being a contract in existence, some new contract
is substituted for it either between the same parties or
between different parties, the consideration mutually being the
discharge of the old contract. A common instance of it in
partnership cases is where upon the dissolution of a
partnership the person who are going to continue in business
agree and undertake as between themselves and the retiring
partner, that they will assume and discharge the whole
liabilities of the business, usually taking over the assets : and
if, in that case, they give notice of that arrangement to a
creditor, and ask for his accession to it, there becomes a
contract between the creditor who accedes and the new firm
to the effect that he will accept their liability instead of the old
liability, and on the other hand, that they promise to pay him
that consideration.”.

REMISSION OF PERFORMANCE
Section 63 enables the promisee to agree to
dispense with or remit performance of promise.
The section reads as under:
“ 63. Promisee may dispense with or remit
performance of promise – Every promisee
may dispense with or remit, wholly or in part, the
performance of the promise made to him, or may
extend the time for such performance, or may
accept instead of it any satisfaction which he
thinks fit.

Illustrations
a) A promises to paint a picture for B. B afterwards
forbids him to do so. A is no longer bound to perform the
promise.
b) A owes B 5,000 rupees. A pays to B and B accepts,
in satisfaction of the whole debt 2,000 rupees paid at
the time and place at which the 5,000 rupees were
payable. The whole debt is discharged.
c) A owes B 2,000 rupees, and is also indebted to other
creditors. A makes an arrangement with the creditors
including B, to pay them a composition of eight annas
in a rupee upon their respective demands. Payment to
B of 1,000 rupees is a discharge of B’s demand.

The section permits a party, who is entitled
to the performance of a contract, to
i. Dispense with or remit, either wholly or in
part, the performance of the contract, or
i. accept any other satisfaction instead of
performance.

(I) DISPENSING WITH OR
REMITTING PERFORMANCE
The promisee has been authorised, by the above stated
provision, to remit or dispense with the performance of
the contract without any consideration. He may fully
forgo his claim, or may agree to a smaller amount in full
satisfaction of the whole amount. Thus, if A promises to
paint a picture for B, B may forbid him to do so, or if A
owes Rs. 5,000 to B, B may accept from A only Rs.
2,000 in satisfaction of the whole of his claim. In such
cases A is discharged so far as the performance of that
contract is concerned. It means that if B agrees to
accept Rs 2.000 in lieu of Rs 5,000 from A, he cannot
thereafter ask a to pay the balance of Rs. 3,000.

ACCEPTING PERFORMANCE FROM THIRD PARTY
The promisee, if he so likes, may accept performance from a third party, and
while accepting such performance he may agree to forgo his claim in part.
Once the promisee accepts a smaller amount in lieu of the whole of his claim,
the promisor would be thereby discharged. This is clear from the illustration
(c) to section 63, which is as follows:
A owes B 5,000 rupees. C Pays B 1,000 rupees, and B accepts them, in
satisfaction of his claim on A. This payment is a discharge of the whole claim.
In Lala Kapuchand Vs. Mir Nawab Himayatali, Khan the position was
considered by the Supreme Court to be similar to that contained in illustration
(c) to section 63. In this case the plaintiff had a claim of Rs. 27 lakhs against
the defendant, the Prince Of Berar In 1949 there was a Police action and
Hyderabad was taken over by the military. The Princes Debt Settlement
Committee set up by the Military Governor decided that the plaintiff be paid
Rs. 20 lakhs in full satisfaction of his claim of Rs. 27 lakhs. The plaintiff
accepted the sum of rupees 20 lakhs from the Government in full satisfaction
of his claim. He thereafter brought an action against the defendant to recover
the balance of Rs. 7 lakhs. It was held that the position was fully covered by
section 63, and the plaintiff having accepted the payment from a third person,
i.e., the Government, in full satisfaction of his claim had no right to bring an
action against the defendant for the balance.

(II) EXTENDING THE TIME OF PERFORMANCE
Section 63 permits a party to extend the time of performance,
and no consideration is needed for the same. The extension of
time must be by a mutual understanding between the parties. A
promisee cannot unilaterally extend the time of performance for
his own benefit. Thus, if a certain date of delivery of goods has
been fixed in a contract of sale of goods and the seller fails to
supply the goods on such date, the buyer cannot unilaterally
extend the time of delivery so as to claim compensation on the
basis of rates prevailing on the extended date. He will be
entitled to compensate only on the basis of the rates prevailing
on the actual date of performance. If the promisee grants the
extension of time be becomes bound thereby. Therefore, if the
creditor allows some time for making the payment to a debtor,
he cannot bring an action against the debtor to recover the
debt, and if such an action is brought it will be dismissed by the
court as being premature.

(III) ACCEPTING ANY OTHER SATISFACTION
INSTEAD OF PERFORMANCE
Section 63 permits the promisee to accept any other satisfaction in lieu of
agreed performance, and this would discharge the promisor. For example, a
owes B, under a contract, a sum of money, the amount of which has not been
ascertained. A without ascertaining the amount gives b, and B, in satisfaction
thereof, accepts, the sum of Rs. 2000. This is a discharge of the whole debt,
whatever may be its amount.
If the promisee pays less than the amount claimed and the promisor does not
consider it to be in full and final satisfaction of his claim, the promisee’s liability
under the contract is not discharged, and the promisor is free to sue for the
balance. In Union of India Vs. Babulal Uttamchand, AIR 1968 Bom. Some
goods belonging to the plaintiffs were lost during transit due to the negligence
of the railway administration. The Plaintiffs’ made various claims and the
railway administration sent cheques along with printed letters mentioning that
the said payments were in full and final satisfaction of the plaintiffs’ claims.
The plaintiffs, however, informed the railway administration that this payment
was being accepted only as part payment of their claims. In an action to
recover the balance of the amount of claims, the defendants pleaded that the
plaintiffs could not sue for the balance as the payment already made was in
full and final satisfaction of the claims. It was held that the plaintiffs’ suit for the
balance of the amount was maintainable, as the amounts were not accepted
in full satisfaction of the claim.

REMEDIES FOR BREACH OF
CONTRACT

CONTRACT
When one of the parties to the contract makes
a breach of the contract the following remedies
are available to the other party.
1. Damages : Remedy by way of damages is the
most common remedy available to the injured
party. This entitles the injured party to recover
compensation for the loss suffered by it due to
the breach o9f contract, from the party who
caused the breach. Section 73 to section 75
incorporate provisions in this regard.

CONTRACT
2. Quantum meruit : When the injured party has
performed a part of his obligation under the contract
before the breach of contract has occurred, he is
entitled to recover the value of what he has
done, under this remedy.
3. Specific Performance and Injunction :
Sometimes a party to the contract instead of recovering
damages for the breach may have recourse to the
alternative remedy of specific performance of the
contract, or an injunction restraining the other party from
making a breach of the contract. Provisions regarding
these remedies have been contained in the Specific
Relief Act, 1963.

DAMAGES
Section 73 makes the following provisions regarding the
might of the injured party to recover compensation for the
loss or damage which is caused to him by the breach of
contract.
Section 73. Compensation for loss or damage caused
by breach of contract. – When a contract has been
broken, the party who suffers by such breach is entitled to
receive, from the party who has broken the contract,
compensation for any loss or damage caused to him
thereby, which naturally arose in the usual course of
things from such breach, or which the parties knew, when
they made contract, to be likely to result from the breach
of it.
Such compensation is not to be given for any remote and
indirect loss or damage sustained by reason of the
breach.

DAMAGES
Compensation for failure to discharge obligation
resembling those created by contract. – When an
obligation resembling those created by contract has
been incurred and has not been discharged, any person
injured by failure to discharge it is entitled to receive the
same compensation from the party in default, as if such
person has contracted to discharge it and had broken his
contract.
Explanation :- In estimating the loss or damage arising
from a breach of contract, the means which existed of
remedying the inconvenience caused by non-
performance of the contract must be taken into account.”

DAMAGES
The section has been explained with the help of the following
illustrations :
a) A contracts to sell and deliver 50 maunds of saltpetre to B , at
certain price to be paid on delivery. A breaks his promise, b is
entitled to receive from A, by way of compensation, the sum, if any,
by which the contract price falls short of the price for which B might
have obtained 50 maunds of saltpetre of like quality at the time
when the saltpetre ought to have been delivered.
b) A contracts to let his ship to B for a year from the first of January,
for a certain price. Freights rise, and on the first of January, the hire
obtainable for the ship is higher than the contract price. A breaks his
promise. He must pay to B, by way of compensation, a sum equal
to the difference between the contract price and the price for which
B could hire a similar ship for a year on and from first January.
c) A contracts to repair B’s house in a certain manner, receives
payments in advance. A repairs the house but not according to
contract. B is entitled to recover from A the cost of making the
repairs conform to the contract.

DAMAGES
In an action for damages for the breach of contract there
arise two kinds of problems :
1. Firstly, it has to be determined whether them loss suffered
by the p0laintiff is the proximate consequence of the
breach of contract by the defendant. The person making
the breach of contract is liable only for the proximate
consequences of the breach of contract. He is not liable
for damage which is remotely connected with the breach
of contract. In other words, the first problem is the
problem of “Remoteness of Damage.”
2. It is found that the particular damage is the proximate
result of the breach of contract rather than too remote, the
next question arises is : How much compensation is to be
paid for the same? This involves determining the
quantum of compensation. This, in other words, is the
problem of “Measure of Damages.”

REMOTENESS OF DAMAGE
The following statement of Alderson B, in case of Hadley Vs.
Baxendale (1854) is considered to be the basis of the law to
determine whether the damage is the proximate or remote
consequence or breach of contract :
“Where two parties have made a contract which one of
them has broken, the damages which the other party
ought to receive in respect of such breach of contract
should be such as may be fairly and reasonably be
considered either arising naturally, i.e., according to the
usual course of things, from such breach of contract itself,
or such as may reasonable be supposed to have been in
the contemplation of both parties, at the time they made
the contract, as the probable result of the breach of it”.

REMOTENESS OF DAMAGE
The rule in Hadley Vs. Baxendale consists of two parts.
On the breach of a contract such damages can be recovered,
(1) as may fairy and reasonably be considered arising naturally, i.e.,
according to the usual course of things from such breach,
OR
(2) as may reasonably be supposed to have been in the contemplation of
both parties at the time they made the contract.
In either case it is necessary that the resulting damage is the probable
result of the breach of contract.
The principle stated in the two branches of the rule is virtually the rule of
“reasonable foresight.” The liability of the party making the breach of
contract depends on the knowledge, imputed or actual, of the loss likely to
arise in case of breach of contact. The first branch of the rule allows
damages for the loss arising naturally, i.e. in the usual course of things from
the breach. The parties are deemed to know about the likelihood of such
loss. The second branch of the rule deals with the recovery of more loss
which results from the special circumstances of the case. Such loss is
recoverable, if the possibility of such loss was actually within the knowledge
of the parties, particularly the party who makes a breach of the contract, at
the time of making the contract.

MEASURE OF DAMAGE
After it has been established that a certain consequence
of the breach of contract is proximate and not remote
and the plaintiff deserves to be compensated for the
same, the next question which arises is : What is the
measure of damages for the same, or in other words the
problem is of the assessment of compensation for the
breach of contract.
Damages are compensatory in nature. The object of
awarding damages to the aggrieved party is to put in the
same position in which he would have been if the
contract had been performed.

MEASURE OF DAMAGE
In a contract of sale of goods the measure of damages is the
difference between the contract price and the market price on
the date of the breach of contract. For instance, A agrees to
supply B a radio set on January for Rs. 1,000. If A fails to
supply the radio set and the market price of the radio set on that
date is Rs. 1,200, B will be entitled to recover from A Rs. 200
as damages. The reason is that the loss suffered by the buyer
is Rs. 200 because due to the rise in the market price of the
radio set he will have to pay that much extra if he purchases the
radio set from the market. Similarly, if the buyer (B) refuses to
take the radio set on the due Date, the seller will also be entitled
to recover the difference between the contract price and the
market price on 1st January. For instance the market price of
the radio set on that date is Rs. 800, A’s loss is Rs.200 in
respect of the transaction, because from another customer A
can get only Rs. 800 whereas B had promised to pay Rs.
1,000 for the same. A can recover Rs. 200 from B..

MEASURE OF DAMAGE
The rule in this regard was stated in Borrow Vs.
Arnaud (1844) in the following words.
“ Where a contract to deliver goods at a certain price is
broken the proper measure of damages in general is the
difference between the contract price and the market
price of such goods at the time when the contract is
broken, because the purchaser having the money in his
hands, may go into the market and buy. So, if a contract
to accept and pay for the goods is broken, the same rule
may be properly applied, for the seller may take his
goods into the market and obtain the current price for
them.”

QUANTUM MERUIT
Ordinarily if a person having agreed to do some work or
render some
service has done only a part of what he was required to
do, he cannot claim anything for what he has done. When
a person agrees to complete some work for a lump sum
non-completion of the work does not entitle him to any
remuneration even for the part of the work done. But the
law recognises an important exception to this rule by way
of an action for ‘Quantum Meruit’ Under this section if A
and B have entered into a contract, and A, who has
already performed a part of the contract, is then prevented
by B from performing the rest of his obligation under the
contract, A can recover from B reasonable remuneration
for what ever he has already done.

QUANTUM MERUIT
It may be noted that this action is not an action for
compensation for breach of contract by the other side. It
is an action which is alternative to an action for the
breach of contract. This action in essence is one of
restitution, putting the party injured by the breach of
contract in a position in which he would have been had
the not been entered into. It merely entitles the injured
party to be compensated for whatever work he may have
already done, or whatever expense he may have
incurred. In the words of Alderson, B,
Where one party has absolutely refused to perform, or
has rendered himself incapable of performing, his part of
the contract, he puts it in the power of the other party
either to sue for the breach of it or to rescind the contract
and sue on a quantum meruit for the work actually
done.”

QUANTUM MERUIT
The essentials of an action of quantum meruit are as
follows :
1. One of the parties makes a breach of contract, or
prevents the performance a part of it by the other side.
2. The party injured by the breach of the contract, who has
already performed a part of it, elects to be discharged
from further performance of the contract and brings an
action for whatever he has already done.
For instance, if A agrees to deliver B 500 bags of wheat
and when A has already delivered 100 bags B refuses
to accept any further supply, A can recover from B the
value of wheat which he has already delivered.

QUANTUM MERUIT
In De Bernardy Vs. Harding, (1853) the
defendant, who was to erect and le seats to view
the funeral of the Duke of Wellington, appointed
the plaintiff as his agent to advertise and sell
tickets for the seats. The plaintiff was to be paid
commission on the tickets sold by him. The
plaintiff incurred some expense in advertising for
the tickets but before any tickets were actually
sold by him his authority to sell tickets was
wrongfully revoked by the defendant. It was held
that the plaintiff was entitled to recover the
expenses already incurred by him under an
action for quantum meruit.

Discharge of Contract

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