Discharge and Breach of Contract Exercise Solutions | KalviGavani

Discharge and Breach of a Contract: Exercise Solutions

How to Use This Page

1. Read the textbook first — These solutions are for revision, not a substitute for the textbook chapter. 2. Attempt the questions yourself before looking at the answers. This helps you identify weak areas. 3. Focus on the MCQs and short answers for quick revision, and the long answers for in-depth understanding. 4. Use the Key Concepts table for a rapid recap before exams. 5. Check the Exam Checklist at the end to make sure you have covered every topic.

---

Key Concepts (Quick Recap)

---

I. Choose the Correct Answer (MCQ)

Q1. On valid performance of contractual obligations, the contract ......... (a) Is discharged ✓ (b) Is void (c) Is voidable (d) Continues

Q2. Agreement to do an act impossible in itself (Sec. 56) ......... (a) Void ✓ (b) Valid (c) Voidable (d) Illegal

Q3. Agreement which becomes impossible to perform ......... (a) Valid (b) Void ✓ (c) Voidable (d) Illegal

Q4. Discharge by mutual agreement may involve ......... (a) Novation (b) Rescission (c) Alteration (d) All of the above ✓

Q5. Compensation given for breach of contract ......... (a) Damage ✓ (b) Injunction (c) Specific performance (d) Quantum meruit

Q1 (Additional). A contract terminated by mutual consent is called discharge by ......... (a) Performance (b) Agreement ✓ (c) Impossibility (d) Operation of law

Q2 (Additional). Supervening impossibility means ......... (a) Impossibility at the time of agreement (b) Impossibility arising after formation of contract ✓ (c) Impossibility by mutual consent (d) None of the above

Q3 (Additional). The term "Quantum Meruit" literally means ......... (a) As much as promised (b) As much as earned ✓ (c) As much as lost (d) As much as agreed

Q4 (Additional). Damages awarded to punish the defaulting party are called ......... (a) Ordinary damages (b) Special damages (c) Exemplary damages ✓ (d) Nominal damages

Q5 (Additional). Section 73 of the Indian Contract Act deals with ......... (a) Quantum meruit (b) Injunction (c) Compensation for breach ✓ (d) Novation

Q6 (Additional). When both parties to a contract are the same person, the contract is discharged by ......... (a) Performance (b) Agreement (c) Merger ✓ (d) Waiver

Q7 (Additional). The right of a party to enforce a contract is lost if not done within the time prescribed by the ......... (a) Indian Contract Act (b) Limitation Act, 1963 ✓ (c) Specific Relief Act, 1963 (d) Sale of Goods Act

Q8 (Additional). Which of the following is NOT a mode of discharge by implied consent? (a) Novation (b) Rescission (c) Performance ✓ (d) Waiver

Q9 (Additional). A court order directing the defaulting party to carry out the contract as agreed is called ......... (a) Injunction (b) Rescission (c) Specific performance ✓ (d) Quantum meruit

Q10 (Additional). Accepting a lesser sum than what is due in full settlement is known as ......... (a) Novation (b) Waiver (c) Remission (d) Accord and satisfaction ✓

Q11 (Additional). Discharge by operation of law takes place through ......... (a) Death (b) Insolvency (c) Merger (d) All of the above ✓

Q12 (Additional). When a promisor offers to perform but the promisee refuses to accept, it is called ......... (a) Actual performance (b) Attempted performance ✓ (c) Novation (d) Rescission

Q13 (Additional). Damages that are recoverable only when special circumstances were communicated at the time of contract are ......... (a) Ordinary damages (b) Special damages ✓ (c) Exemplary damages (d) Nominal damages

Q14 (Additional). An agreement discovered to be impossible after formation becomes ......... (a) Valid (b) Void ✓ (c) Voidable (d) Illegal

Q15 (Additional). Voluntary relinquishment of a right under the contract is ......... (a) Remission (b) Merger (c) Waiver ✓ (d) Rescission

---

II. Fill in the Blanks

1. When a contract is performed according to the terms, it is said to be discharged by performance. 2. Substituting a new contract in place of an old one is called novation. 3. Accord and satisfaction means accepting a lesser sum to settle a claim. 4. An agreement to do an act impossible in itself is void under Section 56. 5. The Latin term "quantum meruit" means "as much as earned". 6. Nominal damages are awarded when there is a technical violation but no substantial loss. 7. Discharge by operation of law occurs through death, insolvency, or merger. 8. Exemplary damages are also known as vindictive damages. 9. A contract must be performed within the time specified under the Limitation Act, 1963; otherwise the promisee loses the legal remedy. 10. When rights and liabilities vest in the same person, the contract is discharged by merger. 11. Rescission means cancellation of the contract by mutual consent before it is due for performance. 12. Alteration means changing one or more terms of the original contract by mutual agreement, without substituting a new contract. 13. Attempted performance is when the promisor offers to perform but the promisee refuses to accept the performance. 14. Section 56 of the Indian Contract Act states that agreements to do impossible acts are void. 15. Specific performance is a remedy where the court directs the defaulting party to perform the contract as agreed. 16. An injunction is a court order that restrains a person from doing a particular act. 17. Remission means accepting a lesser fulfilment than what was actually due. 18. Damages that compensate for loss arising naturally from the breach of contract are called ordinary damages. 19. A contract in which both parties have outstanding obligations is called a bilateral contract. 20. When supervening impossibility makes performance unlawful, the contract becomes void.

---

III. True or False (with corrections)

1. True or False: A contract is discharged when both parties fulfil their obligations. — True. This is discharge by performance.

2. True or False: Novation means adding a new party while keeping the same contract. — False. Novation means substituting a new contract in place of the old one (which may involve new parties or new terms).

3. True or False: Special damages can be claimed even if the other party was not informed of special circumstances. — False. Special damages are recoverable only when the other party was informed of the special circumstances at the time of signing.

4. True or False: An agreement to do an impossible act is valid. — False. Under Section 56, an agreement to do an act impossible in itself is void from the beginning.

5. True or False: Quantum meruit is a claim based on the original contract. — False. Quantum meruit is based on an implied promise to pay for work done, not on the original contract.

6. True or False: Discharge by lapse of time is governed by the Limitation Act, 1963. — True. The contract must be performed within the specified time; otherwise the promisee loses the legal remedy.

7. True or False: Exemplary damages are meant to compensate the injured party for actual loss. — False. Exemplary (vindictive) damages are meant to punish the defaulting party, not to compensate for actual loss. They are awarded in cases like breach of promise to marry.

8. True or False: Waiver and remission mean the same thing. — False. Waiver is the voluntary relinquishment of a right under the contract, while remission is the acceptance of a lesser fulfilment than what was due. They are different concepts.

9. True or False: A contract discharged by performance is the most common and ideal mode of discharge. — True. When both parties perform their obligations as agreed, the contract is naturally discharged.

10. True or False: Merger discharges a contract when the rights of the inferior and superior vest in the same person. — True. When the rights and liabilities under a contract vest in the same person, there is no one to enforce against, so the contract is discharged by merger.

11. True or False: Nominal damages are awarded when there is substantial financial loss. — False. Nominal damages are a very small amount (e.g., Re. 1) awarded to recognize a technical violation of legal rights when no substantial loss has occurred.

12. True or False: A contract becomes void if performance becomes impossible due to supervening events. — True. Under Section 56, if an act which was possible at the time of the contract becomes impossible or unlawful due to supervening events, the contract becomes void.

13. True or False: Injunction is a type of damages awarded by the court. — False. An injunction is a court order restraining a person from doing a particular act. It is not monetary compensation like damages; it is a separate equitable remedy.

14. True or False: Attempted performance has no legal effect. — False. Attempted performance (when the promisor offers to perform but the promisee refuses) discharges the promisor from their obligation. The promisor is not at fault if the promisee refuses acceptance.

15. True or False: Alteration and novation have the same legal effect. — False. In alteration, only some terms are changed but the contract continues; in novation, the original contract is substituted with an entirely new contract. They are distinct modes of discharge by implied consent.

---

IV. Match the Following

Additional Matching:

---

V. Answer Briefly (2-mark answers)

Q1. Kinds of consent: Express consent, Implied consent, Informed consent, Unanimous consent. The modes of discharge by implied consent are: Novation, Accord & Satisfaction, Alteration, Waiver, Rescission, Merger, Remission.

Q2. Types of Impossibility of Performance: (1) Impossibility existing at the time of agreement — the agreement is void ab initio (from the beginning) under Section 56. Example: A agrees to discover treasure by magic, which is inherently impossible. (2) Impossibility arising subsequent to formation of contract (supervening impossibility) — the contract becomes void when performance becomes impossible or unlawful after the contract was made. Example: A contracts to sell a specific horse, and the horse dies before delivery.

Q3. Quantum Meruit: Means "as much as earned." Arises when a contract performed by one party is discharged by breach of the other party. The claim rests on an implied promise by the other party to pay for what has been done, not on the original contract. For example, if a builder is prevented from completing a house, the builder can claim payment for the portion of work already completed under quantum meruit.

Q4. What is discharge by performance? Performance means carrying out the obligation of the contract according to the real intentions of the agreement and done per the time and manner prescribed. Two types: (1) Actual performance — both parties fulfil their obligations exactly as agreed. (2) Attempted performance — the promisor offers to perform but the promisee refuses to accept. In both cases, the promisor is discharged from obligations.

Q5. What is discharge by lapse of time? As per the Limitation Act 1963, a contract must be performed within the specified time period. If the promisee fails to perform within the prescribed time, he loses his legal remedy and the contract is discharged. For example, if a buyer does not file a suit for breach within 3 years of the breach, the right to legal remedy is lost and the contract stands discharged.

Q6. What is meant by discharge by operation of law? A contract can be discharged by operation of law through: (1) Death — if the contract involves personal skill, the death of the promisor discharges it. (2) Insolvency — when a person is declared insolvent, their property vests in the official receiver, and the contract is discharged. (3) Merger — when the rights and liabilities of both parties vest in the same person. (4) Unauthorized alteration — if a party alters the terms without consent, the other party is discharged.

Q7. Distinguish between Novation and Alteration. Novation involves substituting an entirely new contract for the old one, which may involve new parties or new terms. The old contract ceases to exist. Alteration involves changing one or more terms of the original contract by mutual consent, but the contract continues with the modified terms. Both parties must agree in both cases. In novation, a new contract replaces the old; in alteration, the same contract is amended.

Q8. What is the difference between Waiver and Remission? Waiver is the voluntary relinquishment of a right under the contract by the party entitled to it. For example, a landlord waiving the right to receive rent for a month. Remission is the acceptance of a lesser fulfilment than what was actually due. For example, a creditor accepting Rs. 800 in full settlement of a Rs. 1,000 debt. Both require the consent of the party giving up the right or accepting less.

Q9. What is Accord and Satisfaction? Accord and satisfaction is a method of discharging a contract where the parties agree to accept a lesser sum or a different performance in full settlement of the original claim. "Accord" is the agreement to accept less, and "satisfaction" is the actual performance of that agreement. For example, a creditor accepting Rs. 5,000 from a debtor who owes Rs. 7,000 as full and final settlement.

Q10. What is an Injunction? An injunction is a court order that restrains a person from doing a particular act that would be in breach of the contract. It is an equitable remedy used when the contract contains a negative stipulation (a promise not to do something). For example, if a singer contracts to sing exclusively at Theatre A, an injunction can prevent the singer from performing at Theatre B.

Q11. State the difference between Actual Performance and Attempted Performance. Actual performance occurs when both parties fulfil their obligations exactly as agreed under the contract. The contract is discharged naturally. Attempted performance occurs when the promisor is willing and offers to perform his obligation, but the promisee refuses to accept the performance. The promisor is still discharged from liability because the fault lies with the promisee.

Q12. What is Specific Performance? Specific performance is a remedy for breach of contract where the court directs the defaulting party to perform the contract exactly as agreed, rather than paying damages. It is granted when monetary compensation is inadequate, such as in contracts involving unique property or personal services. For example, a court may order the seller to transfer a specific piece of land that was agreed to be sold.

---

VI. Answer in Detail (5-mark answers)

Q1. Ways of discharge of Contract (5 modes): 1. By Performance — carrying out obligations as per agreement (actual or attempted). This is the most common and ideal mode of discharge. When both parties perform their respective obligations, the contract comes to a natural end. Actual performance means both parties fulfil their obligations exactly as agreed. Attempted performance means the promisor offers to perform but the promisee refuses to accept; the promisor is still discharged.

2. By Agreement/Consent — mutual agreement through express or implied consent. Since a contract is created by agreement, it can also be terminated by agreement. Express consent is given explicitly, while implied consent is inferred from conduct. The 7 modes of discharge by implied consent are: Novation, Rescission, Alteration, Remission, Accord and Satisfaction, Waiver, and Merger.

3. By Impossibility of Performance — impossibility existing at time of agreement (void ab initio under Section 56) or arising subsequent (supervening impossibility). Supervening impossibility includes: destruction of the subject matter, non-existence of essential state of things, death or incapacity of the party, declaration of war, or change of law making performance unlawful.

4. By Lapse of Time — per Limitation Act 1963, a contract must be performed within the specified time; otherwise the promisee loses legal remedy. The limitation period for most contracts is 3 years from the date of breach. Once the period expires, the aggrieved party cannot enforce the contract through court.

5. By Operation of Law — through death (if the contract involves personal skill or qualifications), insolvency (when a person is adjudged insolvent, their property vests in the official receiver), merger (when rights and liabilities vest in the same person), or unauthorized material alteration of contract terms (which discharges the party who did not consent to the alteration).

Q2. Remedies for breach of contract (5): 1. Rescission of Contract — the aggrieved party may rescind (cancel) the contract and is absolved from all obligations under it. The party is no longer bound to perform their part. The rescinding party can also claim damages for any loss suffered due to the breach. Rescission must be communicated to the defaulting party and must be done before the right to rescind is lost by affirmation.

2. Claim for Specific Performance — the court directs the party in breach to specifically perform the contract as agreed, rather than paying monetary damages. This remedy is used when damages are not an adequate remedy, such as in cases involving unique property, rare goods, or land. The court exercises discretion and may refuse specific performance if supervision is difficult, if the contract is for personal services, or if the plaintiff has behaved unfairly.

3. Claim for Injunction — a court order restraining a person from doing some act that would be a breach of contract. It is particularly useful for enforcing negative stipulations — promises not to do something. There are two types: (a) Temporary injunction — granted during the pendency of the suit to maintain status quo, and (b) Permanent injunction — granted after final hearing to permanently prevent the breach. Example: A singer contracts to sing exclusively at one theatre; the court can restrain the singer from singing elsewhere.

4. Claim for Quantum Meruit — "as much as earned"; claim for work already done based on an implied promise to pay. This remedy arises when: (a) the contract is discharged by breach of the other party, (b) the contract is discovered to be void, (c) work is done under a contract that is incomplete, or (d) a person enjoys the benefit of non-gratuitous act. The claim is not based on the original contract but on the principle of fairness — the other party should not be unjustly enriched.

5. Claim for Damages — monetary compensation awarded to the injured party for loss suffered due to breach. Governed by Section 73 of the Indian Contract Act, 1872. Damages are meant to put the injured party in the position they would have been in had the contract been performed. The four types of damages are: Ordinary, Special, Exemplary/Vindictive, and Nominal. Damages must be the natural and probable consequence of the breach, or must have been within the contemplation of both parties at the time of contract.

Q3. Types of damages (4): 1. Ordinary Damages — arising in the ordinary course from breach; constitute direct loss. These are damages that naturally and directly result from the breach of contract and are foreseeable by both parties. They compensate the injured party for losses that are the obvious and expected result of the breach. Example: A fails to deliver goods on time, causing B to lose profits from resale. B can claim the lost profits as ordinary damages.

2. Special Damages — for loss from special/unusual circumstances; recoverable only when the other party was informed of special circumstances at the time of signing. The special circumstances must have been communicated to the defaulting party at the time of contract formation so that the possibility of such loss was within the contemplation of both parties. Example: A contracts to deliver a machine to B by a specific date, knowing that B needs it for a particular exhibition. If A delays delivery, B can claim special damages for the loss of the exhibition opportunity.

3. Exemplary/Vindictive Damages — awarded to punish the defaulting party rather than to compensate for actual loss. These are granted in exceptional cases where the breach involves a moral wrong or malicious conduct. In Indian law, exemplary damages are awarded in limited cases such as: (a) breach of promise to marry, (b) dishonour of a cheque by a banker where the customer has sufficient funds, and (c) wrongful dismissal of an employee. The purpose is to deter similar conduct in the future.

4. Nominal Damages — very small amount (e.g., Re. 1) recognizing a technical violation of legal rights with no substantial loss. These are awarded to acknowledge that a legal right has been infringed, even though the plaintiff has not suffered any actual or material damage. The purpose is not to compensate but to vindicate the right and establish that the defendant was in the wrong. Example: A enters B's land without permission but causes no damage; B may be awarded nominal damages.

Q4. Explain the 7 modes of discharge by implied consent: 1. Novation — substituting a new contract for the old one, either with new terms or new parties. Under Section 62 of the Indian Contract Act, the parties may substitute a new contract in place of the old one. Novation may involve: (a) change of terms with the same parties, or (b) substitution of a new party. The essential element is mutual consent — both parties must agree. The old contract is completely replaced and ceases to have any legal effect.

2. Alteration — changing one or more terms of the original contract by mutual agreement. Unlike novation, alteration does not substitute a new contract; it only modifies certain terms while the contract continues. Both parties must consent to the alteration. Importantly, the alteration must not change the fundamental nature of the contract. Example: A and B agree to change the delivery date from 1st March to 15th March while keeping all other terms the same.

3. Rescission — cancellation of the contract by mutual consent before performance is due. Under Section 62, the parties may rescind or determine the contract. Rescission can be total (the entire contract is cancelled) or partial (only a portion is cancelled). The effect of rescission is that both parties are freed from their obligations. Example: A and B agree to cancel their agreement for sale of goods before delivery is made.

4. Remission — acceptance of a lesser fulfilment than what was actually due. Under Section 63 of the Indian Contract Act, a promisee may remit performance either wholly or in part, or may extend the time for performance, or may accept any lesser satisfaction than what was due. For example, a creditor may accept Rs. 8,000 in full settlement of a Rs. 10,000 debt. The key element is that the promisee voluntarily accepts less than the full amount.

5. Accord and Satisfaction — accepting a lesser sum or different performance to settle the original claim. "Accord" is the agreement between the parties to accept something different from what was originally due, and "Satisfaction" is the actual performance of that new agreement. For example, A owes B Rs. 50,000. They agree that A will pay Rs. 40,000 in full settlement (accord). When A pays Rs. 40,000 (satisfaction), the original debt of Rs. 50,000 is discharged.

6. Waiver — voluntary relinquishment of a right under the contract. When a party entitled to enforce a right under the contract chooses to give up that right, the contract is discharged to that extent. Waiver can be express (stated clearly) or implied (inferred from conduct). For example, a landlord who waives the right to receive rent for a particular month. The key point is that waiver must be intentional and voluntary.

7. Merger — rights of one party merge into the other when the lesser right merges with the greater right, discharging the contract. This occurs when the rights and liabilities under a contract vest in the same person. For example, if a debtor becomes the creditor's heir, the debt is extinguished by merger because the same person cannot owe money to themselves. Similarly, if a tenant purchases the rented property, the leasehold right merges into the ownership right.

Q5. Explain Supervening Impossibility with its cases (5-mark): Supervening impossibility refers to impossibility that arises after the formation of the contract, making performance impossible or unlawful. Under Section 56 of the Indian Contract Act, a contract that was possible at the time of formation but becomes impossible or unlawful due to subsequent events becomes void. The key cases of supervening impossibility are:

1. Destruction of the subject matter — If the specific thing required for performance is destroyed, the contract becomes void. Example: A contracts to sell a specific painting, but the painting is destroyed in a fire before delivery.

2. Non-existence or non-occurrence of essential state of things — When the existence of a particular state of things is the basis of the contract, and that state ceases to exist, performance becomes impossible. Example: A books a hall for a concert, but the hall is destroyed by an earthquake.

3. Death or incapacity of the party — If the contract involves personal skill or qualification, the death or incapacitating illness of the party discharges the contract. Example: A famous surgeon contracts to perform an operation but dies before the date.

4. Declaration of war — If war is declared between the countries of the contracting parties, performance may become impossible or unlawful. Example: A Indian trader contracts to supply goods to an English firm, but war breaks out between India and England.

5. Change of law making performance unlawful — If a new law or regulation makes the performance of the contract illegal, the contract becomes void. Example: A contracts to sell a type of goods that are subsequently banned by the government.

In all cases of supervening impossibility, the contract is discharged and neither party can enforce it. However, the doctrine does not apply if the impossibility is merely temporary or if performance has merely become more expensive or difficult.

Q6. Distinguish between Ordinary Damages and Special Damages:

---

Common Mistakes to Avoid

1. Discharge by performance ≠ Discharge by agreement — Performance means the contract is fulfilled as agreed. Agreement means both parties mutually agree to end it. 2. Quantum meruit = "as much as earned" — Not "as much as promised." The claim is for work already done, not the full contract value. 3. Special damages require prior knowledge — The other party must have been informed of the special circumstances at the time of signing. Otherwise, only ordinary damages apply. 4. Exemplary damages punish the defaulting party — They are not compensation for loss; they are punishment. Only awarded in specific cases like breach of promise. 5. An impossible agreement is VOID from the beginning — Under Section 56, agreements to do impossible acts are void ab initio. 6. Discharge by mutual agreement includes ALL: Novation, Rescission, Alteration — The MCQ asks which ones are included, and the answer is "all of the above." 7. Attempted performance still discharges the promisor — If the promisor is ready and willing to perform but the promisee refuses, the promisor is discharged from liability. 8. Alteration is NOT novation — In alteration, terms change but the contract continues; in novation, the old contract is entirely replaced. 9. Nominal damages are not zero damages — They are a token amount (even Re. 1) to acknowledge that a legal right was violated. 10. Supervening impossibility does not apply to mere difficulty — The contract is not discharged if performance has merely become more expensive or difficult; it must be truly impossible or unlawful.

Exam Checklist

• [ ] Can list 5 modes of discharge (performance, agreement, impossibility, lapse of time, operation of law)
• [ ] Can list 7 modes of discharge by implied consent
• [ ] Know 5 remedies for breach (rescission, specific performance, injunction, quantum meruit, damages)
• [ ] Can explain 4 types of damages (ordinary, special, exemplary, nominal)
• [ ] Understand quantum meruit — "as much as earned"
• [ ] Know Section 56 — impossible agreements are void
• [ ] Know Section 73 governs compensation for breach
• [ ] Can distinguish actual performance vs attempted performance
• [ ] Know the Limitation Act 1963 governs discharge by lapse of time
• [ ] Can explain each mode of discharge by implied consent with examples
• [ ] Can list the 5 cases of supervening impossibility
• [ ] Can distinguish between ordinary damages and special damages
• [ ] Understand the difference between novation and alteration
• [ ] Can explain accord and satisfaction with an example
• [ ] Know that exemplary damages are for punishment, not compensation
• [ ] Can explain the difference between waiver and remission
• [ ] Understand when specific performance is granted and when it is refused
• [ ] Know that injunction enforces negative stipulations in contracts
• [ ] Can explain discharge by operation of law (death, insolvency, merger, unauthorized alteration)
• [ ] Can distinguish between void ab initio and supervening impossibility