Commercial Law – Performance & Discharge of Contracts

Obligation of Parties to Contracts

Sec $37$ : Each party must perform or offer to perform (tender) his promise unless performance is excused or dispensed with by law.
Promises bind legal representatives upon death of a promisor, unless the contract indicates a contrary intention.
Illustration – Delivery of goods:
- A promises to deliver goods to B on a fixed day upon payment of Rs $1,000$ . A dies ➔ A’s representatives must still deliver; B must pay Rs $1,000$ to the representatives.
Illustration – Contract involving personal skill:
- A promises to paint a picture for B by a set date. A dies ➔ contract cannot be enforced (personal skill dies with A).

Offer of Performance (Tender) – Sec $38$

When the promisor offers to perform and the promisee refuses ➔ promisor has made a “tender” or “attempted performance”.
Legal effect of refusal:
- Promisor is released from obligation to perform.
- Promisor retains contractual rights (may sue for breach, price, etc.).

Requisites of a Valid Tender

Must be unconditional and strictly per contract terms.
Must cover the whole obligation or entire quantity.
Made by a person ready, willing and able to perform.
Made at the proper time & place (usual business hours/place unless otherwise agreed).
Made to the proper person or authorised agent.
For goods: promisee gets reasonable opportunity of inspection.
Joint promisees: tender to any one is sufficient.
Money tender: must be in legal tender currency.

Exception to Tendering Rule

Startup v. Macdonald $(1843)$ $6$ Man G $523$ : Delivery of linseed oil tendered at $8{:}30$ pm, Mar $31$ . Though hour unreasonable, buyer could still accept before midnight; refusal unjustified.

Refusal to Perform Wholly – Sec $39$

If a party refuses or disables himself from performing entire promise, promisee may terminate the contract.
BUT if promisee acquiesces (by words/conduct) ➔ cannot later repudiate; may only claim damages.
Example:
- A contracted to lecture $7$ days; lectured $5$ and wilfully absented. College may end the contract.
- If college allowed A to lecture on day $7$ , absence accepted ➔ cannot end contract; can seek compensation.
Upon valid termination, benefits must be refunded.
- If A had received advance Rs $5,000$ ➔ must refund when contract ends.
Case: Muralidhar Chatterjee v. International Film Co., $47$ Cal W N $407$ – Termination under Sec $39$ equals rescission of a voidable contract; promisee must restore benefits (Sec $64$ ) and may claim damages.

By Whom the Promise Is to Be Performed – Sec $40$

Promisor himself, when intention/personal skill involved (singing, marriage, painting, lecturing, etc.).
A competent agent if no personal consideration.
Legal representative on promisor’s death when not personal.
Third person – once promisee accepts performance, cannot refuse.
Joint promisors under joint liability rules (Secs $42$ – $44$ ).

Devolution of Joint Liabilities – Secs $42$ – $44$

“Devolution” = passing of obligations.
Unless contrary intention, all joint promisors must jointly perform.
Death of a joint promisor ➔ his legal representative joins survivors.
Death of all promisors ➔ representatives of all must jointly perform.

Liability & Contribution

Promisee may compel any one or more joint promisors for whole promise.
Each promisor who pays can seek equal contribution from others unless contract says otherwise.
Default by one ➔ remaining share loss equally.
Release of one joint promisor does not discharge others, nor his contribution liability.

Devolution of Joint Rights – Sec $45$

Right to performance lies with all promisees jointly; after death, with survivors + representative(s) of deceased; after all die, with representatives jointly.

Time & Place of Performance – Secs $46$ – $50$

Sec $46$ : No time specified & no application needed ➔ perform within reasonable time.
Sec $47$ : Time specified, no application ➔ promisor may perform any time during business hours on due day at agreed place.
Sec $48$ : When promisee must apply for performance ➔ duty to apply at proper place, usual hours.
Sec $49$ : No place fixed ➔ promisor must ask promisee to appoint reasonable place.
Sec $50$ : Promise may sanction any manner/time of performance.

Reciprocal Promises – Secs $51$ – $54$ , $57$

Simultaneous promises (Sec $51$ ): Neither party bound unless other ready & willing.
Fixed order (Sec $52$ ): Must follow contract order; or, absent, natural order.
Prevention of performance (Sec $53$ ): Contract voidable by party prevented; entitled to compensation.
1. Case: O’Neil v. Armstrong $(1895)$ $2$ Q B $418$ – Englishman quit Japanese ship when war broke; wages recoverable (was prevented by state act).
Dependent promises (Sec $54$ ): If one party fails and other’s promise depends on it ➔ failing party cannot enforce.
Promise partly legal & partly illegal (Sec $57$ ) ➔ void.

Failure to Perform at Fixed Time – Time as Essence – Sec $55$

If time essential ➔ failure makes contract or unperformed part voidable at option of promisee.
If time not essential ➔ contract survives; promisee only gets compensation.
Tests of essence: nature, express clause, surrounding circumstances.
- Sale of immovable property: time not essence unless explicitly stated.
- Groceries for a marriage, medical accessories for surgery: time is essence.

Appropriation of Payments – Secs $59$ – $61$

Debtor intimates appropriation ➔ creditor must apply accordingly (Sec $59$ ).
No intimation & circumstances not indicative ➔ creditor may apply to any lawful debt due and payable (Sec $60$ ).
- Default rule: part payment goes to interest first, balance to principal.
If creditor fails to appropriate ➔ payments applied to debts in chronological order (Sec $61$ ).
Clayton’s Case Rule (running account): first credit item discharges/reduces earliest debit item.

Contracts Which Need Not Be Performed

Performance impossible (Sec $56$ ).
Substitution/alteration/rescission – novation (Sec $62$ ).
Promisee dispenses/remits/extends/accepts other satisfaction (Sec $63$ ).
Voidable contract rescinded (Sec $64$ ).
Promisee fails to provide reasonable facilities (Sec $67$ ).
Contract illegal.

Discharge of Contract – Overview

By performance (actual or attempted).
By mutual agreement (novation, rescission, alteration, remission, waiver, merger).
By impossibility (initial or supervening).
By lapse of time (Limitation Act).
By operation of law (death, insolvency, merger, unauthorized alteration, same person unites rights & liabilities).
By breach (actual or anticipatory).

Supervening Impossibility – Excuses vs Non-excuses

Excuses: destruction of subject matter, non-existence of state of things, death/incapacity for personal services, change of law, outbreak of war.
Not excuses: mere difficulty, commercial impracticability, third-party failure, strikes/lock-outs/civil disturbances, failure of one of several objects.

Breach of Contract

Actual breach: at due date or during performance.
Anticipatory breach: before due date, by renunciation or act making performance impossible.

Remedies

Rescission.
Suit for damages.
Suit on quantum meruit.
Specific performance.
Injunction.

Damages – Types & Principles

Objective: place injured party in same monetary position as if contract performed.
Types:
- Ordinary (general) damages.
- Special damages.
- Vindictive / Exemplary damages.
- Nominal damages.
- Damages for loss of reputation.
- Damages for inconvenience & discomfort.
- Liquidated damages & penalty.

Ordinary Damages

Recover losses that naturally & directly arise in usual course, i.e., proximate consequence.
Example: A to sell $100$ tons wheat @ Rs $1,000$ /ton; breach when market Rs $1,100$ . Damages = Rs $(1,100-1,000) imes100 = 10,000$ .

Special Damages

Recoverable when contemplated by both parties at formation.
Example: Goods for exhibition to reach by Oct $15$ ; reach Oct $16$ ➔ loss of participation ➔ claim special damages.
Leading case: Hadley v. Baxendale $(1854)$ $9$ Ex $341$ – rule on foreseeability; delayed shaft delivery, mill idle; profits not recoverable absent notice.

Vindictive / Exemplary Damages

For breach of promise to marry & wrongful dishonour of cheque.
- Rule: smaller the cheque, larger the damages (protection of reputation).

Nominal Damages

No actual loss but legal right violated – token amounts Rs $1$ , $10$ , $100$ .
- Example: Exhibition postponed so loss avoided; still breach.

Damages for Inconvenience & Discomfort

Available irrespective of promisor’s motive or manner.
- Example: Employee A wrongfully dismissed without notice ➔ eligible damages for mental distress.

Mitigation of Damages

Injured party must take reasonable steps to minimise loss; cannot recover avoidable losses.
- Example: Insured owner must attempt to extinguish fire; failure bars claim.

Liquidated Damages vs Penalty

Liquidated damages: genuine pre-estimate, roughly equal to probable loss; enforced as agreed (subject to Sec $74$ in India – reasonable compensation not exceeding amount).
- House purchase: earnest money forfeiture if buyer defaults.
- Construction contract delay charge.
Penalty: amount disproportionately high, intended to secure performance; court may reduce to reasonable sum.

Quantum Meruit

Latin "as much as earned" – arises when one party partly performs, and contract ends by breach / impossibility; law implies promise to pay reasonable remuneration.

Injunction

Court order restraining breach of negative stipulation (e.g., non-compete, do not sing elsewhere).

Specific Performance

Decreed when damages inadequate, e.g., unique goods, land, shares in private company.
Granted when:
- No monetary standard for damage.
- Money compensation likely uncollectible.
Refused when:
- Damages adequate.
- Contract uncertain, inequitable, revocable, made in breach of trust, beyond company’s MOA, or court cannot supervise.

Quasi-Contracts (Law of Restitution) – Secs $68$ – $72$

Not true contracts; imposed by law to prevent unjust enrichment.
Kinds:
1. Necessaries supplied to incapable person – supplier entitled to reimbursement from property (Sec $68$ ).
2. Payment of another’s debt by interested person – right of reimbursement (Sec $69$ ).
3. Non-gratuitous act benefiting another – right to compensation (Sec $70$ ).
4. Finder of goods – bailee-like obligations & rights (Sec $71$ ).
5. Money/thing delivered by mistake or coercion – must be returned (Sec $72$ ).

Finder of Lost Goods

Must take ordinary prudence care, attempt to locate owner; else liable for conversion.
May retain goods against all except owner.
May sell when: perishable, owner untraceable with diligence, owner refuses lawful charges, or charges $\ge$ $\frac{2}{3}$ value.

Contingent Contracts – Sec $31$

Performance conditional on uncertain future collateral event.
Examples:
- A to pay B Rs $10,000$ if B wins contest.
- Insurance – insurer pays Rs $1$ lakh on death of insured.

Essential Features

Performance depends on happening / non-happening of uncertain event.
Event must be uncertain & collateral.

Rules

Depends on happening: enforceable only when event happens; if impossible, contract void.
- Crops destroyed ➔ sale contract void.
Depends on non-happening: enforceable when event becomes impossible.
- Car sale conditional on price $\le$ Rs $5$ lakh; price rises to Rs $6$ lakh ➔ void.
Where contingency is how a person will act, impossibility arises when that person acts inconsistently.
- A to pay if B marries C; C marries D ➔ A discharged.
Fixed time: contract void if event does not occur (or impossibility) before deadline.
- Supply goods if ship arrives by date; ship late ➔ void.
Contingent on impossible event ➔ void ab initio, whether known or not (e.g., pay if C marries but C already dead).

Wager vs Contingent Contract

Wager: reciprocal promises, sole determining uncertain event, void in India; parties no interest beyond stake.
Contingent: may lack reciprocal promises, collateral event, valid; parties have genuine interest.

Summary Flow of Discharge & Remedies

Perform or valid tender ➔ contract ends.
If performance excused, or contract discharged by agreement, impossibility, lapse, operation of law ➔ no breach.
If breach (actual/anticipatory) ➔ injured party elects remedy: damages (ordinary, special, etc.), rescission, specific performance, injunction, quantum meruit.
Underlying principles: compensation, mitigation, prevention of unjust enrichment, equity, and certainty in commercial dealings.