LAB Session 7-8 / Class Study Material

Adv Dr Harsh Pathak

Performance of Contracts (Sections 37-67)

Performance of a contract is the fulfillment of the contractual obligations by the parties

involved. According to the Indian Contract Act, 1872, Sections 37-67 cover various aspects
of contract performance, including the obligations of parties, the effect of refusal, and the
consequences of non-performance.

1. Void, Voidable, and Illegal Agreements:

- Void Agreements: A void agreement is one that is not enforceable by law. Section 2(g) of
the Indian Contract Act defines a void contract as an agreement not enforceable by law.
For example, A contracts with B, a minor, to buy a car. Since B is a minor and lacks
the legal capacity to enter into a contract, the agreement is void. Another example is if A
and B enter into an agreement to sell a property, but the consideration (payment) is
missing. This lack of consideration makes the contract void from the beginning,
meaning it has no legal effect.
-
- Voidable Contracts: A voidable contract is enforceable at the option of one of the parties.
Under Section 2(i) of the Act, a contract becomes voidable when one party is not bound
 to perform it due to some defect, such as coercion, undue influence, misrepresentation,
or fraud. The aggrieved party can either enforce the contract or repudiate it. Example :
A induces B to sign a contract to sell B's land by threatening B with physical harm. B
signs the contract under duress. This contract is voidable at B's option because it was
entered into under coercion. B can choose to either enforce the contract or cancel it.
Another example is if A sells a car to B by making a false statement about the car's
mileage. If B discovers the truth, B has the option to either affirm the contract or void it
due to misrepresentation.
-
- Illegal Agreements : An illegal agreement is one that is forbidden by law. Unlike void
agreements, which may not necessarily be unlawful, illegal agreements are not only void
but also punishable under the law. Example : A and B enter into a contract to smuggle
goods across the border, which is illegal under the law. Since the purpose of the contract
is unlawful, the contract is illegal and, therefore, void. Additionally, any contract that
involves activities like gambling (where prohibited), prostitution, or drug trafficking
would be considered illegal and void. Such contracts are unenforceable, and the parties
involved cannot seek legal recourse for any disputes arising from them.

2. Discharge of Contract

The discharge of a contract occurs when the obligations under the contract come to an end.
This can happen in several ways:

- By Performance: When both parties perform their contractual obligations, the contract is
discharged. For example, if A agrees to sell a car to B for ₹500,000, and both fulfill their
obligations, the contract is discharged.

- By Agreement or Consent: The parties may mutually agree to terminate or modify the
contract. This can happen through novation, rescission, or alteration. For instance, A and
B may agree to cancel their contract and enter into a new one with different terms.

- By Impossibility or Frustration: If the performance of a contract becomes impossible due

to unforeseen circumstances, the contract is discharged. Section 56 of the Act deals with
the doctrine of frustration. For example, if a concert is canceled due to a natural disaster,
the contract between the organizer and the ticket holders is discharged.

- By Breach: A breach occurs when one party fails to perform their obligations under the
contract. This may result in the discharge of the contract and give rise to remedies for the
aggrieved party. For instance, if A agrees to deliver goods to B on a specific date but fails to
do so, B can treat the contract as discharged and seek remedies.
- By Operation of Law: Certain legal events may lead to the discharge of a contract, such as
insolvency or the death of a party involved.

3. Quasi Contracts (Sections 68-72)

Quasi-contracts are not actual contracts but are treated as contracts by law. They are based
on the principle of unjust enrichment, where one party benefits at the expense of another
without a legal contract. The Indian Contract Act covers the following quasi-contractual
situations:

- Supply of Necessaries (Section 68): If a person supplies necessaries to someone who is

incapable of contracting (e.g., a minor or a person of unsound mind), they are entitled to
reimbursement from the property of the incapable person. Example: A person, A,
provides food and shelter to B, who is a minor and cannot enter into a contract. Since
these are necessities, A is entitled to be reimbursed for the cost of providing these
necessities from B’s property, even though B did not formally agree to pay.
-
- Payment by Interested Party (Section 69): If a person pays money on behalf of another
under circumstances that make it necessary for them to do so, they are entitled to be
reimbursed. Example : C, a tenant, pays property taxes on the landlord’s behalf to
prevent the property from being auctioned by the government. Since the payment was
necessary to protect the property, C can recover the amount from the landlord, even
though the landlord did not request the payment.
-
- Obligation to Pay for Non-Gratuitous Acts (Section 70): If a person lawfully does
something for another or delivers something to another without intending to do so
gratuitously, the other party is bound to compensate for the benefit received. Example :
D mistakenly delivers a shipment of goods to E, who is not the intended recipient but
accepts and uses the goods. Since D did not intend to deliver the goods gratuitously, E is
obligated to pay D for the value of the goods.
-
- Responsibility of Finder of Goods (Section 71): A person who finds goods belonging to
another must take reasonable care of them and is entitled to compensation for expenses
incurred in preserving the goods. Example : F finds a lost wallet on the street. F takes
reasonable steps to locate the owner and incurs expenses in the process. F is entitled to
be reimbursed by the owner for the costs incurred in preserving and returning the
wallet.
-
- Money Paid or Goods Delivered by Mistake or Coercion (Section 72): If a person receives
money or goods by mistake or under coercion, they must return them. Example : G
 mistakenly pays ₹10,000 to H, believing H is a creditor. Upon realizing the mistake, G
can demand that H return the money, as H has no legal right to keep it.

4. Breach of Contracts

A breach of contract occurs when one party fails to perform their obligations as per the
terms of the contract. Breaches can be classified into two types:

- Anticipatory Breach: This occurs when one party declares their intention not to perform
their obligations before the performance is due. For example, if A agrees to deliver goods
to B in a month but informs B two weeks before the due date that they will not deliver, it is
an anticipatory breach. Important : Mitigation principle applied in claiming damages.

- Actual Breach: This happens when one party fails to perform their obligations on the due
date or during the performance of the contract.

5. Performance of Contract and Force Majeure

Performance of a contract refers to the fulfillment of contractual obligations by the parties.

However, in certain situations, external events may prevent performance, leading to the
invocation of a ‘Force Majeure’ clause. This clause allows parties to suspend or terminate
their contractual obligations without liability in case of unforeseen events like natural
disasters, wars, or pandemics.

Example : during the COVID-19 pandemic, many contracts were suspended or

terminated due to government-imposed lockdowns, leading to the invocation of force
majeure clauses. The impact of force majeure depends on the specific wording of the clause
and the nature of the unforeseen event.

6. Remedies for Breach of Contract

When a breach of contract occurs, the aggrieved party has several remedies available:

- Damages: The primary remedy for a breach of contract is the award of damages to
compensate the aggrieved party. These can be compensatory, nominal, or liquidated
damages, depending on the nature of the breach.

- Specific Performance: In certain cases, the court may order the defaulting party to
perform their contractual obligations. This remedy is typically used when damages are
inadequate.
- Injunction: An injunction may be granted to prevent a party from doing something that
would violate the contract.

- Rescission: The aggrieved party may seek to rescind (cancel) the contract and be restored
to the position they were in before the contract.

- Restitution: The aggrieved party may seek restitution to prevent the unjust enrichment of
the defaulting party. Here are examples for each remedy to a breach of contract:

Example :
1. Compensatory Damages: Suppose a homeowner hires a contractor to build a house for
₹50,00,000 with a deadline of 6 months. If the contractor delays the project by 2 months,
and the homeowner has to pay ₹2,00,000 in additional rent during this time, the
homeowner can claim compensatory damages of ₹2,00,000.

2. Liquidated Damages: Consider a contract between a company and a software developer

with a clause stating that the developer will pay ₹1,00,000 for every week of delay in
delivering the software. If the developer is 3 weeks late, the company can claim ₹3,00,000
as liquidated damages.

.3. Specific Performance : If a real estate developer agrees to sell a rare beachfront property
to a buyer, and later breaches the contract by refusing to sell, the buyer may seek specific
performance. The court may order the developer to complete the sale since the property is
unique and monetary compensation may not be adequate.

4. Injunction: A company hires an employee with a non-compete clause stating that the
employee cannot work for a competitor within the same region for one year after leaving
the company. If the employee breaches this clause by joining a competitor, the former
employer can seek an injunction to prevent the employee from working for the competitor
for the specified period.

5. Rescission: Imagine a person purchases a car from a dealer based on the dealer's
fraudulent claim that the car is new. Later, the buyer discovers that the car is used. The
buyer can seek rescission of the contract, which would involve returning the car to the
dealer and receiving a full refund of the purchase price.

5. Restitution: Suppose a party mistakenly delivers goods worth ₹1,00,000 to the wrong
person, believing them to be the rightful recipient. The recipient sells the goods and profits
from them. The rightful owner can seek restitution to recover the value of the goods,
ensuring that the recipient does not unjustly benefit from the mistake.
 Case Law :
The case of Satyabrata Ghose vs. Mugneeram Bangur & Co. (1954) is a landmark judgment
by the Supreme Court of India on the doctrine of frustration under Section 56 of the Indian
Contract Act, 1872. The case arose when Mugneeram Bangur & Co. agreed to sell a plot of
land to Satyabrata Ghose, with the condition that the land would be developed before
handing over possession. However, due to the government's requisition of the land during
World War II, the development work was delayed.

The primary issue was whether the contract was frustrated due to the delay in
performance. The Supreme Court held that the contract was not frustrated, emphasizing
that mere delay or inconvenience in performance does not constitute frustration unless it
radically changes the nature of the contractual obligations. The court stated that the
requisition of land did not make the contract impossible to perform; hence, it was still
enforceable. This case established that frustration must involve the impossibility of
performance and not merely hardship or delay, solidifying the legal understanding of
Section 56 in India.

Conclusion:
Understanding the nuances of contract law, including the performance, breach, and
remedies, is crucial for ensuring that contractual obligations are met and that parties have
recourse in case of non-performance. The Indian Contract Act, 1872 provides a
comprehensive framework for addressing these issues, ensuring fairness and justice in
contractual relationships.

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Adv Dr Harsh Pathak