PERFORMANCE AND Morial Shah

DISCHARGE OF Law Lecturer, IBA

CONTRACTS
AIMS
Responsibility for performing contracts,
Section 37 and 40, Contract Act of 1872:
 Who must perform the contract?
 Can third parties be required to perform a contract?
 Dead persons?
 Agents?
Joint and several liability – Sections 42-45,
Contract Act of 1872
Time is of the essence contracts and
reciprocal promises
 PERFORMANCE: WHO MUST PERFORM?– SECTION
37, CONTRACT ACT 1872

What do we mean by “performance” of the contract?

 Parties fulfil contractual obligations

Can a third party be liable for performance?

 Doctrine of privity c.f. Dunlop v Selfridge
 Parties to the contract must perform or offer to perform their contract–
Section 37
If one of the parties to the contract dies, do his legal representatives have to
comply with his obligations?
 Yes
 Exception: the contract stipulates otherwise or involves personal skills of
the dead person – Section 37, Contract Act 1872
SECTION 37, CONTRACT
ACT 1872
AGENTS – SECTION 40,
CONTRACT ACT 1872
Can the promisor appoint an agent in situations not involving skill?

 Ahmed agrees to supply apples to Hasan. He appoints Bilal as his agent

for delivering those apples. Can he do so?

 Asma agrees to paint a painting for Morial. She appoints Fatema as her
agent for painting. Can she do so?
SECTION 40, CONTRACT
ACT 1872
Section 40, Contract Act 1872
If the nature of the contract suggests that the
parties intended the promisor to personally
perform the contract, then he must perform it
himself.

If personal performance is not required, then

the promisor may appoint a competent person
(agent) for performing contractual obligations
JOINT AND SEVERAL
LIABILITY – SECTIONS 42 - 45
Performance of Joint Contracts, Section 45, Contract Act 1872 –
Joint and Several Liability
 A, B and C agree to pay D Rs 3000. D sues A, compelling A to pay the entire
amount.
 Does A have to pay D Rs 3000?
 Can A recover a Rs. 1000 each from B and C?
 Yes and yes
 The phenomenon of joint and several liability allows several parties to be liable for the same act or
event. The person wronged can sue one, some or all of those parties.
 If only one of the joint promisors performs the obligation e.g. “A” in the case above, then he can
subsequently demand contribution from others to the extent of their commitment.
 This follows from the concepts of devolution of joint rights and liabilities.
SECTION 55 – TIME IS OF THE ESSENCE?

“Effect of failure to perform at fixed time, in contract in which time is essential

55. When a party to a contract promises to do a certain thing at or before a specified
time, or certain things at or before a specified times, and fails to do any such thing at
or before the specified time, the contract, or so much of it as has not been
performed, becomes voidable at the option of the promisee, if the intention of the
parties was that time should be of the essence of the contract.
Effect of such failure when time is not essential
If it was not the intention of the parties that time should be of the essence of the
contract, the contract does not become voidable by the failure to do such thing at or
before the specified time; but the promisee is entitled to compensation from the
promisor for any loss occasioned to him by such failure.
Effect of acceptance of performance at time other than that agreed upon
If, in case of a contract voidable on account of the promisor's failure to perform his
promise at the time agreed, the promisee accepts performance of such promise at
any time other than that agreed, the promisee cannot claim compensation for any
loss occasioned by the non-performance of the promise at the time agreed, unless, at
the time of such acceptance he gives notice to the promisor of his intention to do
so.”
 TIME IS OF THE ESSENCE CONTRACTS - SECTION 55
Scenario 1: Tweedle Dee agrees to provide sandwiches for Rabbit’s Tea Party for Alice in Wonderland. Rabbit’s
tea party starts at 4:00 pm. Sandwiches must arrive no later than 3:50 pm. The contract clearly states and parties
agree: time is of the essence. Late sandwiches and people are both unacceptable at tea parties.

Tweedle Dee supplies sandwiches at 4:30 pm. Section 55 of the Contract Act of 1872 applies to this jurisdiction.

Q1. Does Rabbit have to accept the late delivery of sandwiches?

• No
• Q2. Is the contract voidable at Rabbit’s option?
• Yes.

• Scenario Twist 2: The contract states that sandwiches should arrive by 2:00 pm so that Rabbit’s staff can
arrange them. Tweedle Dee delivers them at 3:00 pm.
• Q1. Is time of the essence here i.e. is time an essential or fundamental term?
• No
• Q2. Is the contract voidable? Can Rabit elect to ‘avoid’ the contract?
• No, see Section 55
• Q 3. Can Rabit recover damages?
• Yes!

• Scenario Twist 3: Assume Scenario 1 applies. Time is of the essence. Tweedle Dee delivers sandwiches at 4:30
pm, instead of before 3:50 pm. Rabbit is upset, but really needs sandwiches. Can Rabbit accept the late
delivery?
• Yes, he can
• If so, is the contract still voidable?
• No it isn’t. It becomes a performed contract
• Can Rabbit sue for damages for the delay caused (assuming damages accrued – think of a different context,
particularly a long run contract with daily deliveries).
• No, per Section 55. But he can if gives that notice at time of acceptance. The law on this is a bit different in
DISCHARGE OF Morial Shah
CONTRACTS
DISCHARGE OF CONTRACT

 Discharge?
 When rights and obligations arising from contracts END i.e.
the contract is terminated. Performance is excused or dispensed
with under certain conditions
 How can a contract be discharged?
1. Performance
2. Contract becomes void
3. Agreement
4. Subsequent impossibility or failure of commercial purpose
(frustration)
5. Lapse of time
6. Operation of Law
7. Breach of Contract
DISCHARGE CONT’D

“Once a contract has been created it must be discharged. It will

ordinarily be discharged by performance but may otherwise be
discharged by unilateral rescission if the contract is voidable, mutual
rescission, novation, alteration, the discovery that the agreement is
void, the frustration of contract, the failure of the promise to provide
facilities for performance, the failure of one party to perform a
promise on which the other depends or after which the other is to
follow or the remission of performance by the promisee.” (pp 219,
Taymour Soomro)
“A contract is held to be frustrated where performance becomes
impossible by law, the subject matter of the contract is destroyed
(Taylor v Caldwell), and event at the foundation of the contract fails
to occur (Krell v Henry), or the promisor was to perform in person
and is ill or dies. Where performance becomes difficult rather than
impossible because the law has changed or circumstances have
changed, the contract will not be frustrated. (pp 226-233, Taymour
Soomro)
DISCHARGE BRIEF OVERVIEW
Discharge:
 1. PERFORMANCE
 Actual or attempted - section 37 or 38
 2. AGREEMENT
 Novation, alteration, mutual cancellation (rescission), acceptance of part
performance, waiver etc
 3. SUBSEQUENT IMPOSSIBILITY
 Destruction of subject matter
 e.g. Taylor v Caldwell (1863) 32 LJQB 164 where the concert hall caught
fire
 failure of purpose
 e.g. Krell v Henry (1903) 2 KB 740 – where Krell sued Henry for rent of
coronation day room
 death or incapacity
 subsequent illegality
 e.g. Man Singh v Kazan Singh (AIR 1961 RAJ 270), concerning Rajasthan’s
forest laws
 4. LAPSE OF TIME
 For a breach of contracts, legal action must be taken within the applicable
limitation period (see Limitation Act 1908)  you snooze, you lose
DISCHARGE OF CONTRACT CONT’D
5. OPERATION OF LAW
 Insolvency
6. BREACH
 ACTUAL BREACH
 Occurs on the due date
 Or on mere part performance e.g. Lahore-RYK-Karachi shoe carrying situation
 ANTICIPATORY BREACH
 Occurs before the due date
 It can be either
 (I) Express
 e.g. where the party communicates his refusal to perform
 or (ii) Implied
 e.g. Maheen XI has a prized heirloom emerald ring that belonged to
her great-great grandmother Maheen III. Maheen agrees to sell her
heirloom emerald ring to Zoya on 1st June. Before the due date,
Maheen changes her mind and sells the heirloom emerald ring to
Rimsha on May 3rd. Implied anticipatory breach?
DISCHARGE
What are the effects of the promisor’s anticipatory breach?
1. Promisee is excused from performance
1. E.g. In the example above, Zoya no longer has to
perform her obligation to pay
2. Promisee may ignore the promisor’s conduct, wait
for the time of performance and then sue the
promisor
3. Promisee may terminate contract and sue for damages
immediately
 cf  Hochster v De La Tour (1853) 2 E & B
REMEDIES FOR
BREACH OF
CONTRACT
REMEDIES FOR BREACH OF CONTRACT

Situation:
 Ali and Basit have a contract
 Ali breaches the contract by refusing to perform his obligations
under the contract
 Ali’s breach causes losses to Basit
 What remedies are available to Basit?
 Depending on the circumstances and type of contract, Basit
may bring
1. Suit for rescission
2. Suit for damages (ordinary, special, liquidated, punitive)
3. Suit for specific performance (land contracts)
4. Suit for injunction
5. Suit for quantum meruit (outline)
REMEDIES FOR BREACH
OF CONTRACT
SUIT FOR RESCISSION?
 Rescission refers to cancellation of the contract
 A party is entitled to rescind the contract when his
consent is caused by coercion, undue influence,
misrepresentation, fraud or a fundamental breach of
the contract
 Rescission restores the parties in the position they were
in before they entered into the contract
 SUIT FOR DAMAGES – SECTION 73, CONTRACT ACT 1872

Damages compensate the aggrieved party for losses suffered as a consequence

of breach of contract.
The aggrieved party may recover damages for its losses when the loss is
(i) caused by the breach
(ii) Is a natural or foreseeable consequence of the breach
(iii) And is a kind of loss for which damages are recoverable
TYPES OF DAMAGES
1. Ordinary

2. Nominal

3. Special

4. Liquidated

5. Punitive (not common in

Pakistan)
ORDINARY DAMAGES
May be calculated using the following measures:
1. Expectation or difference in value measure
2. Cost of cure measure (outline)
3. Reliance measure (outline)

EXPECTATION OR DIFFERENCE IN VALUE MEASURE

Usually referred to as “net loss” but may not be “loss” in the strict sense
 c.f. Professor Attiyah and Professor O’Sullivan debate
 c.f. Pakistani Supreme Court judgment where the court required the claimant to prove loss (albeit of opportunity)
and applied a higher standard- West Pakistan Industrial Development Corporation, Karachi v. Aziz Qureshi 1973
SCMR 555 ( textile distributor case)
ORDINARY DAMAGES – EXPECTATION OR DIFFERENCE IN
VALUE MEASURE

Generally, such damages are the difference between the contract price and market
price on the date of the breach
Example 1:
C contracts with D (a driveway company) to resurface C’s driveway. D’s price is Rs 5000. D
breaches the contract by failing to do the work at all. Other contractors charge Rs 7000 for the
same job (the “market value”).
 The difference in value measure is Rs 2000. That is, the court will award Rs 2000 in damages to
C.

Example 2:
The person selling you a painting claims that “it’s a Gulgee.” If this were true, then the market price
would be Rs 20,000. He tells you he wants to sell it you at a discounted rate of Rs 1000 instead. You
buy the painting.
The painting is not a Gulgee and is only worth Rs 800 on the market. Assuming that ‘it’s a Gulgee’
was a contract term, what compensation can you receive for breach of contract?
Your compensatory damages should put you in the position if the contract had been performed.
Your expectation measure as a consequence is
Warranted contract value – actual market value = Rs 20000- Rs 800 = Rs 19200
Or alternately,
20,000 -1000 = 19,000 (what you expected) + 200 (additional amount lost)
= Rs 19,200
SPECIAL DAMAGES
Compensation for consequential damages is awarded when the Hadley
v Baxendale criteria are met.
 That is, when the losses are NOT indirect, remote or non-causally
linked under Section 73
 NB: in the case itself the claimant was not able to satisfy this criteria
Specifically, when the loss or damage claimed “naturally arose in the
usual course of things from such breach, or which the parties knew,
when they made the contract, to be likely to result from the breach” -
Section 73 (foreseeability)

 Victoria Laundry v Newman Industries Ltd (1949) 2 KB 528

 The claimants purchased a boiler for their laundry. The defendants were aware that the claimants wished to put the boiler to immediate use; they
also knew the nature of the claimants’ business.
 In breach of contract, the defendants delivered the boiler 5 months late
 Consequently, the claimants had to forgo profits from the boiler for those 5 months and they missed a lucrative Ministry of Supply contract
 The claimants sued the defendants for breach and sought compensation for (i) ordinary profit forgone during that time and (ii) special profit that
they could have made on the contract with the Ministry of Supply. Could they succeed?
 Held by the court:
 They could recover ordinary profits because those losses could be foreseen; the parties either knew or were likely to know that those losses
could arise from the breach
 But they could not recover the special damages because the defendants did not know about the Ministry of Supply contract and could not have
foreseen that loss
Liquidated Damages
 Sometimes, parties fix the amount of damages for breach of contract at the time of formation
 Hasan contracts to deliver books to Abdullah on Tuesday. Their contract stipulates in event of breach, the breaching party
must pay Rs 20 as compensation. Hasan fails to deliver the books. How much can Abdullah receive by way of damages?
 Rs 20
 Please note that liquidated damages cannot be a sum large enough to count as a penalty.

Nominal Damages
 When the innocent party suffers no loss, the court may at its discretion award some nominal
sum by way of damages

Punitive or Exemplary damages

 Might be awarded for emotional distress from breach of contract
 More common in the US
EQUITY
SUITS FOR SPECIFIC PERFORMANCE
 Contracts of Land or chattels (eg paintings)

SUITS FOR INJUNCTION

 Injunction is a court order restraining a person from committing a breach of a negative
stipulation in a contract.
 Although injunctions are also strictly discretionary, the courts are generally more willing
to grant an injunction than an order for specific performance
 Lumley v Wagner (1852) De GM & Co 604
 F: W opera singer had signed 3 months exclusive contract with L. This contract contained an express negative
undertaking that she would not sing for rivals during that period. She decided to sing for a rival. L applied to
the Court for an injunction to stop her. Could he succeed?
 Yes
 The court granted an injunction in this case because the contract contained a clear negative undertaking. The
court deemed that doing so was not equal to a specific performance of her obligation to sing at L’s theatre
SUIT UPON QUANTUM
MERUIT (OUTLINE)
Quantum meruit?
 Payment in proportion to work done or for reasonable value of work done
 When the breaching party prevents performance, this sum is paid to the innocent
party in recognition of the performance or part of the performance that it has already
completed
 Craven Ellis v Cannon Ltd (1936) 2 KB 403
 C was employed as MD in a company. After 3 months, it was discovered that the company directors were
not authorized to appoint him. C sued for remuneration.
 Held: C could recover for work done