Unit 2 - Practice Quiz

The promisor is the party who makes the promise and is therefore obligated to perform it as per the terms of the contract.

A contract is discharged by performance when both parties have fulfilled their respective obligations. This is the natural and most common conclusion to a contract.

Awarding damages, which is monetary compensation for the loss suffered, is the most common remedy a court grants for a breach of contract.

A tender, or 'offer of performance', is when a party shows they are ready, willing, and able to perform their contractual duty.

Novation is the process of substituting an existing contract with a new one, thereby discharging the original contract. This requires the consent of all parties involved.

Quantum Meruit is a remedy that allows a party to recover a reasonable sum for the work they have done when the contract is breached or found to be void.

According to contract law, if no time for performance is specified, the engagement must be performed within a reasonable time, which depends on the context of the contract.

Discharge of a contract signifies the end of the contractual relationship and the termination of the rights and obligations it created.

Specific performance is an equitable remedy where the court, instead of awarding damages, directs the breaching party to perform the contract as promised. It is usually granted when monetary compensation is inadequate.

Supervening impossibility, or the doctrine of frustration, applies when an unforeseen event occurring after the contract is made renders performance impossible or illegal.

Reciprocal promises are promises that are exchanged between the parties, where each promise serves as consideration for the other.

An injunction is a judicial remedy that prohibits a party from doing or continuing a specific act. It is often used to prevent a breach of a negative term in a contract.

Rescission is a mode of discharge by mutual agreement where all parties consent to cancel the contract and abandon their rights and obligations under it.

Nominal damages are awarded when the plaintiff proves a breach of contract but fails to prove any substantial financial loss. It acknowledges the infringement of a legal right.

Contracts that rely on the personal skill, taste, or qualification of the promisor are discharged upon the death or incapacitation of that promisor.

A breach of contract occurs when a party, without a lawful excuse, fails or refuses to perform what is due from them under the contract. This can lead to the discharge of the contract.

When one party breaches the contract, the aggrieved party has the right to rescind or cancel the contract, thereby being freed from their own obligations.

The Limitation Act sets time limits for taking legal action. If the promisee fails to act within this period, they lose their right to a remedy, and the contract is discharged by lapse of time.

Actual performance occurs when both the promisor and promisee have done exactly what they agreed to do in the contract, leading to its discharge.

The fundamental principle behind damages is to provide monetary compensation that places the injured party in the same financial position they would have been in if the contract had been properly performed.

This scenario is governed by Section 61 of the Indian Contract Act, 1872 (also known as Clayton's Rule). When neither party makes any appropriation, the payment shall be applied in discharge of the debts in order of time. If debts are of equal standing, the payment shall be applied in discharge of each proportionately. The rule applies even to debts that are barred by the Limitation Act.

According to Section 56 of the Indian Contract Act, 1872, a contract becomes void when its performance becomes impossible due to a subsequent event beyond the control of the parties. The compulsory acquisition of the property by the government makes it legally and physically impossible for X to perform his promise to sell the house to Y. This is a classic case of discharge by supervening impossibility, also known as the Doctrine of Frustration.

When a contract specifies a sum to be paid in case of a breach, and this sum is a genuine and reasonable pre-estimate of the likely loss, it is termed 'liquidated damages' (Section 74, Indian Contract Act). The court will award this amount. If the amount is exorbitant and intended to compel performance rather than compensate for loss, it is a 'penalty', and the court will only award reasonable compensation up to the stipulated amount.

According to Section 37 of the Indian Contract Act, 1872, promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract. Since the delivery of goods does not involve personal skill or qualification, the contract does not imply a contrary intention. Therefore, Priya's legal representatives must perform the promise.

Novation, under Section 62 of the Indian Contract Act, 1872, occurs when a new contract is substituted for an existing one, either between the same parties or between different parties. Here, the original contract between A and B is discharged and replaced by a new one between B and C. The key element is the substitution of a new party (C) for an old one (A), which is a form of novation.

The remedy of specific performance is generally not granted by courts for contracts of a personal nature or those which require personal skill, volition, or continuous supervision. Forcing a painter to paint would involve personal skill and volition, and the court cannot supervise the quality of the work. Therefore, while damages or an injunction might be granted, specific performance is highly unlikely.

This is a case of a valid 'tender of performance' or 'offer to perform' under Section 38 of the Indian Contract Act, 1872. When a promisor has offered to perform his promise, and the promisee does not accept the performance, the promisor is not responsible for non-performance, nor does he thereby lose his rights under the contract. The builder is discharged from his obligation and can sue the owner for breach of contract.

An anticipatory breach (Section 39, Indian Contract Act) occurs when a party to a contract repudiates their obligation before the time fixed for performance has arrived. The singer's communication of her refusal to perform before the concert date is a clear example. The organizer can either treat the contract as rescinded immediately and sue for damages or wait until the date of performance to take action.

This scenario is based on the leading case of Hadley v. Baxendale and is covered under Section 73 of the Indian Contract Act. Special damages can be claimed for losses that arise from special circumstances known to both parties at the time of the contract. Since the carrier was explicitly informed that the mill was stopped, the loss of profit due to the delay was a foreseeable consequence of the breach. Therefore, the miller is entitled to claim special damages.

The doctrine of frustration or supervening impossibility does not cover commercial hardships. A contract is not discharged merely because its performance has become more difficult, more expensive, or less profitable than anticipated. A significant increase in the price of raw materials makes the contract commercially difficult but not impossible to perform.

This involves reciprocal promises where the order of performance is fixed by the nature of the transaction (Section 52, Indian Contract Act). A's performance (repairing the house) must logically precede B's performance (paying for the repair). Since A has failed to perform his part of the promise, he cannot claim performance from B and is also liable for the breach.

Quantum Meruit means 'as much as is earned' or 'in proportion to the work done'. When one party is prevented from fully performing the contract by the fault of the other party, they can claim reasonable remuneration for the part of the work they have already completed. This is the most suitable remedy for A to get compensated for the half-finished wall.

Discharge by merger occurs when an inferior right accruing to a party under a contract merges into a superior right accruing to the same party. Here, the tenant's right to occupy the property under the tenancy (inferior right) merges into his right of ownership (superior right) after he purchases the property. The tenancy agreement is thus discharged by operation of law.

As per Section 43 of the Indian Contract Act, each of the three joint promisors is liable to contribute equally, i.e., ₹1,00,000 each. If one promisor (A) makes a default in contribution, the remaining joint promisors (B and C) must bear the loss arising from such default in equal shares. A's share is ₹1,00,000, but he can only pay half (₹50,000). The deficit is ₹50,000. This loss must be shared equally by B and C (₹25,000 each). Therefore, C can recover from B his original share (₹1,00,000) plus his share of A's deficit (₹25,000), totaling ₹1,25,000.

An injunction is a court order restraining a person from doing a particular act. In this case, the producer can seek an injunction to prevent the actress from violating the negative stipulation in their contract (i.e., the promise not to work for anyone else). While the court cannot compel her to act in his film (specific performance), it can prevent her from acting for someone else. This is based on the principle from the case Warner Bros. v. Nelson.

This question tests the conceptual distinction. Novation means substituting an existing contract with a new one. This new contract can be between the same parties (with new terms) or between different parties. Alteration means modifying one or more terms of the original contract with the consent of the parties. The core identity of the contract remains, but its terms are changed. Novation creates a completely new contract, discharging the old one.

Section 46 of the Indian Contract Act, 1872, states that where, by the contract, a promisor is to perform his promise without application by the promisee, and no time for performance is specified, the engagement must be performed within a reasonable time. What constitutes a 'reasonable time' is a question of fact depending on the circumstances of the case, such as the nature of the goods and trade customs.

Nominal damages are awarded when the plaintiff's legal right has been infringed, but they have suffered no actual financial loss. The purpose is not to compensate the plaintiff but to recognize that their right has been violated. The amount is very small (e.g., ₹1 or ₹10) and serves to vindicate the plaintiff's right.

Under Section 63 of the Indian Contract Act, 1872, a promisee may dispense with or remit, wholly or in part, the performance of the promise made to him. This is known as remission or waiver. By forgiving the debt, B has remitted the performance of A's promise, and the contract is discharged without any new consideration being required for such a remission.

According to Section 41 of the Indian Contract Act, 1872, if a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor. Since B accepted the performance from C, A is discharged from his promise. This applies unless the contract required personal performance by the promisor.

According to Section 43 of the Indian Contract Act, 1872, when joint promisors are involved, they are equally liable to contribute to the performance of the promise unless a contrary intention appears. Here, each promisor's share is ₹3,00,000. If one promisor (A) defaults (due to insolvency), the remaining promisors (B and C) must bear the loss in equal shares. A's deficiency is his entire share of ₹3,00,000. This loss must be shared equally by B and C, so each must contribute an additional ₹1,50,000. Therefore, C, having paid the full amount, can recover from B his original share (₹3,00,000) plus his share of A's deficiency (₹1,50,000), totaling ₹4,50,000.

This is a classic case of the Doctrine of Frustration. The contract becomes impossible to perform due to a subsequent event (the government ban) that was not contemplated by the parties and was not their fault. The subject matter, specifically the essential acoustic wood, has ceased to be available, making performance physically and legally impossible. Commercial impossibility (Option C) applies when performance becomes more expensive or difficult but not impossible; here, it's genuinely impossible. It's not a breach (Option B) because A is not at fault, and there's no mutual agreement (Option A), but rather a discharge by operation of law.

The rule in Hadley v. Baxendale establishes two types of damages. First, ordinary damages are those that arise naturally in the usual course of things from the breach. Since Y informed X that the factory was stopped, the loss of normal profits (₹50,000) is a foreseeable and direct consequence. Second, special damages are those that arise from special circumstances. To claim these, the special circumstances must have been communicated to the defendant at the time of the contract. Since Y did not inform X about the lucrative government contract, this loss is considered too remote, and Y cannot recover the ₹5,00,000 for it.

Novation (Section 62 of the Indian Contract Act) is the substitution of a new contract for an old one, either between the same parties or between different parties. Here, the original contract between A and B is substituted with a new contract between C and B. A key feature is the change of parties, with the express agreement to discharge the original debtor (A). This extinguishes the original contract and all its ancillary terms, like the mortgage security. Alteration involves changes to the terms of the same contract without changing the parties. Remission is accepting a lesser sum or performance. Accord and Satisfaction is a broader term for discharging a claim by accepting some other performance, but novation is the specific term for substituting a contract or party.

Courts are extremely reluctant to grant specific performance for contracts involving personal skill, volition, or service. Forcing a painter to paint against their will would require constant supervision to ensure the quality of work, which is not feasible for a court. It also infringes on personal liberty. While B can get his advance back (restitution), claim damages for the breach, and potentially seek an injunction (a negative covenant), the court will not compel the positive act of painting the portrait. Therefore, specific performance is the least likely remedy to be granted.

Section 61 of the Indian Contract Act provides that if neither party makes an appropriation, the law will appropriate the payment in order of time. This rule applies even to debts that are barred by the law of limitation. Therefore, the payment of ₹8,000 will first be applied to the earliest debt, which is the time-barred debt of ₹5,000. The remaining ₹3,000 will then be applied to the next debt in chronological order, which is the ₹10,000 debt from 2020. This is a crucial and often misunderstood aspect of the appropriation of payments.

This scenario deals with the interaction between anticipatory breach and supervening impossibility. When A committed an anticipatory breach on May 20th, B had the right to immediately accept the repudiation and sue for damages. B did so by mitigating his loss and buying from another supplier. The subsequent supervening event (the government ban on May 25th) is irrelevant because the contract was already terminated by B's acceptance of A's breach. The rights and liabilities of the parties were crystallized on May 20th. If B had chosen to keep the contract alive and wait until June 1st, then the supervening illegality would have discharged the contract, and A would have been absolved of liability.

Quantum Meruit means 'as much as is earned'. It is a remedy that allows a party who has performed part of a contract before being prevented from completing it by the other party to claim reasonable remuneration for the work done. The claim is not based on the original contract price but on the implied promise to pay for the value of the services rendered. In this case, the builder could sue on quantum meruit to recover ₹40,00,000, the value of the work completed, which may be more advantageous than suing for his costs plus the proportionate profit.

This situation falls under Section 56 (para 2) of the Indian Contract Act, which deals with supervening impossibility. The contract was for 100 specific goods. The destruction of a substantial part (50%) of these specific goods, by an event not attributable to the promisor's fault, makes the performance of the contract as originally contemplated impossible. The contract becomes void. It is not divisible in a way that A can compel B to take the damaged half. The basis of the agreement has been frustrated, thus discharging both parties from their obligations.

This question involves the principle of accord and satisfaction, specifically as modified by Section 63 of the Indian Contract Act. While the English law rule in Pinnel's Case states that payment of a lesser sum does not discharge a larger debt due to lack of consideration, Indian law is different. Section 63 allows a promisee to remit or dispense with the performance of the promise made to him, or accept any other satisfaction instead of it. The acceptance of ₹40,000 from the third party (R) in full and final settlement acts as a complete discharge of the entire debt of ₹50,000. Q is therefore prevented from suing for the balance.

Courts award damages that are a direct and foreseeable consequence of the breach. The ₹1 crore difference between the contract price and the substitute painting's price is a standard measure of expectation damages (Option B). Restitution (Option D) is also standard. The profit made by the breaching party (Option A) can sometimes be claimed under disgorgement but is less common than expectation damages. However, the claim for ₹1 crore in estimated additional profit (Option C) is highly speculative. It's difficult to prove with certainty that the specific painting would have generated that exact amount of extra income. Courts are wary of awarding damages based on speculative future profits, considering them too remote and not capable of precise calculation.

This question touches upon the limits of contractual freedom, specifically regarding exemption clauses. While parties can agree to waive certain rights, a contract or a clause that aims to exempt a party from liability for its own negligence (or the negligence of its employees/agents) is often considered void as being against public policy (related to Section 23 of the Indian Contract Act). B had a duty of care to provide safe equipment. The injury was caused by a breach of this duty (negligence), not merely by the inherent risks of the stunt. An exemption clause cannot absolve a party from the consequences of their own negligence leading to personal injury.

A force majeure clause operates based on the occurrence of a specified event, not on the 'but-for' causation of the financial distress. The clause is contractual. Since 'epidemics' and 'government lockdowns' are explicitly listed as triggering events, and these events did occur, the clause is activated. The landlord's argument about the tenant's prior financial state is irrelevant to the operation of the clause itself. The contract provided a specific remedy (suspension of rent) for a specific event. The doctrine of frustration (Option A) does not apply here because the contract itself has foreseen the event and provided a solution for it.

When a contract for the sale of property explicitly states that 'time is of the essence', the date of performance becomes a condition of the contract, not merely a warranty. B's failure to perform on the stipulated date (March 31st) constitutes a breach of a condition. This gives the innocent party (A) the right to treat the contract as repudiated. Therefore, A is no longer bound by the contract and is free to sell to C. He can also sue B for any damages he might have suffered due to the breach. The other options are incorrect because the 'time is of the essence' clause elevates the importance of the performance date beyond a minor term.

In a case of an undisclosed principal, when the third party discovers the principal's identity, they have the right to sue either the agent or the principal. This is known as the doctrine of election. However, the third party's right is alternative, not joint. They must make a choice (elect) whom to hold liable. Once the third party obtains a judgment against one, they are precluded from suing the other, even if the judgment is not satisfied. The fact that the agent also pledged personal credit reinforces their personal liability, making the election more pronounced.

This question tests the interaction between a termination clause (a condition subsequent) and a non-waiver clause. The termination clause is triggered by the destruction of the plant. The supplier's decision not to terminate after the minor fire could be seen as a waiver for that specific event. However, the non-waiver clause explicitly prevents this act from being interpreted as a waiver for subsequent breaches or triggering events. The second, massive fire is a new, distinct event that fully satisfies the condition for termination. Therefore, the supplier can validly invoke the clause, and the non-waiver provision defeats the buyer's argument of estoppel or waiver.

Under Section 74 of the Indian Contract Act, if a sum is named in the contract as the amount to be paid in case of a breach, the court will award reasonable compensation not exceeding the amount so named. The court must determine if the stipulated amount is a genuine pre-estimate of the loss (liquidated damages) or a deterrent meant to terrorize the party into performance (penalty). A single, lump sum payable for any breach, major or minor ('fails to perform any part'), is a strong indication of a penalty. Since ₹50,00,000 is grossly disproportionate to the actual loss for a minor breach (missing 1 of 10 posts), the court will treat it as a penalty and award reasonable compensation, which would likely be closer to the actual loss of ₹1,00,000.

According to Section 47 of the Indian Contract Act, when a promise is to be performed on a certain day, and the promisor has not undertaken to perform it without application by the promisee, the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed. A delivery at 11:30 PM is clearly outside the usual hours of business for a commercial warehouse. Therefore, B's refusal to accept the delivery is justified, and A has failed to make a valid tender of performance.

This scenario directly tests Section 63 of the Indian Contract Act. This section departs from English law by stating that a party can dispense with or remit performance or accept any other satisfaction in place of the original promise. Crucially, no new consideration is required for such a promise to be binding. B's acceptance of the car in 'full satisfaction' is a valid discharge of the entire debt, despite the car's value being less than the debt amount. The agreement does not need to be in writing unless specified by another law (which is not the case here for a simple debt). B is estopped from going back on his promise once he has accepted the alternative performance.

This is a complex application of Section 74. The Supreme Court of India has held (e.g., in ONGC v. Saw Pipes) that even if no actual damage is proven, where damages are difficult or impossible to prove, the sum stipulated by the parties as liquidated damages can be awarded if it is a genuine pre-estimate of loss. The burden of proof would be on the breaching party (A) to show that the clause is a penalty. Given the critical nature of banking software, a per-day delay charge is likely to be seen as a reasonable pre-estimate of potential disruptions, even if, by chance, no loss occurred in this specific instance. Therefore, the court is unlikely to award zero (Option B) or only nominal damages (Option C). It will uphold the clause as a basis for awarding reasonable compensation, which could be the full amount if it's not deemed a penalty.