TOPIC 7

DISCHARGE OF CONTRACT
Discharge of A Contract:
When the rights and obligations arising out of a contract are extinguished, the contract is said to
be discharged or terminated. A contract may be discharged in any of the following ways:
(a) By performance – actual or attempted
(b) By mutual consent or agreement
(c) By subsequent or supervening impossibility or illegality
(d) By lapse of time
(e) By operation of law
(f) By breach of contract

Discharge by performance:
Performance of a contract is one of the most common ways of discharging a contract. When a
contract is duly performed by both the parties, the contract comes to a happy ending and nothing
more remains. However, if only one party performs his promise, he alone is discharged. A
contract can be discharged by performance in any of the following ways:

1. Actual Performance [Section 37]

When each party to the contract fulfils his obligation arising under the contract within the time
and in the manner prescribed.
Example 1: A agrees to sell his watch to B for Rs. 400. A delivers the watch to B and B makes
the payment. This is actual performance of contract.
Example 2: Azam contracted to deliver to Babar at his warehouse on 1st November, 500 bales
of cotton of a particular quality. Azam brought the cotton of requisite quality to the appointed
place on the appointed day during the business hours, and Babar took the delivery of goods.
Azam has discharged his obligations under the contract by actual performance.
2. Attempted Performance/Tender [Section 38]
When the promisor offers to perform his obligation under the contract, but is unable to do so
because the promisee does not accept the performance.
Example 1: A agrees to sell his book to B for Rs. 500. A offers to deliver the book but B does
not accept it. This is offer of performance.
Example 2: Azam contracted to deliver to Babar at his warehouse on 1st November, 500 bales
of cotton of a particular quality. Azam brought the cotton of requisite quality to the appointed
place on the appointed day during the business hours, and Babar refused to take the delivery of
goods; it is a case of attempted performance because Azam has done what he was required to do
under the contract and his obligation under the contract comes to an end.
Essentials of Attempted Performance:
A valid tender or offer of performance must fulfil the following conditions:
1. It must be unconditional. A conditional tender is no tender. For example, A, who is a
debtor of company B, offers to pay if shares are allotted to him at par. It is no tender.
2. It must be made at proper time and place. A tender before or after the due date or at a
place other than agreed upon is not a valid tender. For example, A is tenant of B. He
offers him rent at a marriage party. B is not bound to accept as the tender is not made at a
proper place.
3. It must be of whole obligation contracted for and not only of the part. Thus, deciding of
his own to pay in instalments and offering the first instalment was held an invalid tender
as it was not of the whole amount due.
4. If the tender relates to delivery of goods, it must give a reasonable opportunity to the
promisee for inspection of goods so that he may be sure that the goods tendered are of
contract description.
5. It must be made by a person who is in position and is willing to perform the promise. A
tender by minor or idiot is not a valid tender.
6. It must be made to the proper person i.e. the promisee or his duly authorized agent.
Tender made to a stranger is invalid.
7. If there are several joint promisees, an offer to anyone of them is a valid tender.
However, the actual payment must be made to all joint promisees. For example, A gets
the chairs on rent from X, Y and Z jointly. A can return the chairs to anyone of them.
8. In case of tender of money, exact amount should be tendered in the legal tender money.
Tendering a cheque of Rs. 1,000 to a bus conductor for a ticket of Rs. 10 is not a valid
tender.
Effect of Refusal To Accept A Valid Tender
The effect of refusal to accept a properly made ‘offer of performance” is that the contract is
deemed to have been performed by the promisor i.e. tenderer, and the promisee can be sued for
breach of contract.

Discharge By Agreement Or By Consent

Since a contract is created by means of an agreement, it may also be discharged by another
agreement between the same parties.
1. Novation [Section 62]
When a new contract is substituted for an existing contract, either between the same
parties or between the different parties. If parties are same, the terms of contract must be
substantially changed for novation otherwise it is alteration.
Example 1: A owed to B and B to C. A’s debt to B is cancelled and C accepts A as his
debtor. It is novation.
 Example 2: A owes B, Rs. 10,000. A mortgaged his estate to B for the debt of Rs.
10,000. This is a new contract and terminates the old one.

2. Alteration [Section 62]

When the parties are same but there is change in one or more of the material terms of the
contract.

Example 1: A agrees to supply salt to B on 1st Feb. Later A and B agree to change the
date of delivery to 1st March. It is alteration of contract.
Example 2: Zahid promises to sell and deliver 500 bales of cotton, on 1st November and
Yasir promises to pay for goods on 1st December. Afterwards, Zahid and Yasir mutually
decide that the goods shall be delivered in five equal instalments at Zahid's warehouse.
Here, original contract has been discharged and a new contract has come into effect.

3. Rescission
It is cancellation of contract by mutual consent before it is discharged by performance.
Example 1: A promises to deliver goods to B on a certain date. Before the date of
performance, A and B agree that the contract will not be performed. The contract is
rescinded.
Example 2: Asif promises Beenish to sell and deliver 500 Bales of cotton on 1st
November at her warehouse and Beenish promises to pay for goods on 1st December.
Asif does not supply the goods. Beenish may rescind the contract.

4. Remission
The acceptance of a lesser sum than what was contracted for or for a lesser fulfilment of
the promise made.
Example 1: A owes B Rs. 5,000, B agrees to accept Rs. 2,000 in full satisfaction of his
claim. The whole debt is discharged. Government decided to recover only 40% of debt.
Later, the government cannot recover more than 40% of debt.
Example 2: Anum owes Bilal Rs.5,000. Sohail pays to Bilal Rs.1,000, and Bilal accepts
them in satisfaction of his claim on Anum. This payment is a discharge of the whole
claim.

5. Waiver
Waiver means the deliberate abandonment or giving up a right to which a party is entitled
under the contract.
Example 1: A promises to make a shirt for B if B sings a song. B sang a song but B
afterwards forbids him to do so. The contract is terminated by waiver.
Example 2: Adeel promises to paint a picture for Saleem. Saleem afterwards requested
Adeel not to do so. Adeel, if agreed is no longer bound to perform the promise.

BY SUBSEQUENT IMPOSSIBILITY OR ILLEGALITY

1. Impossibility at The Time Of Contract
 such agreements are void ab initio.
2. subsequent impossibility
the contract becomes void contract and parties are discharged from their rights and
obligations. if a party feels difficulty in performing a contract, it is not subsequent
impossibility.
(a) Destruction of subject matter
When the subject matter of a contract, subsequent to its formation, is destroyed,
without the fault of the promisor or promisee, the contract is discharged. Note that it
is so only when specific property or goods are destroyed which cannot be regained.
Example: C lent his hall to T for concerts. The hall was destroyed by fire before the
first concert. The contract becomes void. C contracted to sell potatoes to H but failed
to supply as the crop was destroyed by a pest. The contract was held to be discharged.
(b) Failure of ultimate purpose
Where the ultimate purpose for which the contract was entered into fails, the contract
is discharged.
Example 1: A contracts to hire a room at a hotel to attend a seminar to be held on a
particular date. The seminar is postponed. The contract is discharged.
Example 2: H hired a room from K to see the coronation of king. The coronation was
cancelled due to king’s illness. K sued for rent. It was held that H need not pay the
rent.
(c) Death or personal incapacity of promisor
Where the performance of a contract depends upon the personal skill or qualification
or the existence of a given person, the contract is discharged on the illness or
incapacity or the death of that person.
Example 1: A and B contracted to marry each other. A dies before the time fixed for
the marriage. The contract becomes void.
Example 2: An artist contracted to sing at a particular date but fell ill and could not
sing. Held, that the contract was discharged.
(d) Change of law
A subsequent change in law may render the contract illegal and in such cases the
contract is deemed discharged.
Example: There was a contract for sale of trees of a forest. Later, the government
prohibited cutting of trees in that area.
(e) Outbreak of war
Contracts entered into before the outbreak of war are suspended during the war and
may be revived after the war is over provided they have not already become time-
barred.
Example: A contracts to carry cargo for B at a foreign port. Later A’s government
declares war against the country were the port is situated. The contract becomes void.
(f) Particular state of things ceases to exist or occur
The contract is discharged if that particular state of thing which forms the basis of a
contract ceases to exist or occur.
 Example: Alex and Boris contract to marry each other. Before the time fixed for the
marriage, Alex goes mad. The contract becomes void.
Cases Not Covered by Supervening Impossibility
Impossibility of performance is, as a rule, not an excuse from performance. It means that a
person should perform his promise if he has promised to do so unless the performance becomes
absolutely impossible. A contract is not discharged by the supervening impossibility in the
following cases:
(a) Difficulty of performance
If the performance of a contract becomes difficult, more costly or less beneficial than that agreed
at the time of its formation, a contract will not be discharged.
Example: A agreed to supply gold within a specified time. He failed to supply in time because
of government's restriction on the transport of gold from collieries. Here A will not be
discharged because the gold was available in the open market from where A could have obtained
it.
(b) Commercial impossibility
When the contract becomes commercially unviable or non-profitable it is not said to be
discharged.
Example: Ajay, a furniture retailer, agreed to supply certain furniture to Sanjay at an agreed rate.
Afterwards, there was a sharp increase in the rates of the timber and rates of wages. Since, it was
no longer profitable to supply at the agreed rate, Ajay did not supply. Ajay will not be discharged
on the ground of supervening impossibility.
(c) Default of a third party
On default of a third party, on whose work the promisor is relying, a contract is not said to be
discharged.
Example: Alex entered into a contract with Boris for the sale of goods to be manufactured by
Catherine, a manufacturer of those goods. Catherine did not manufacture those goods. Alex will
not be discharged and will be liable to Boris for damages.
(d) Strikes, lockouts and civil disturbances
Unless otherwise agreed by the parties to the contract, a contract is not discharged on the
grounds of strikes, lockouts and civil disturbances.
Example: Austin agreed to supply to Bashir certain goods to be imported from America. The
goods could not be imported due to riots in that country. It was held that this was no, excuse for
non-performance of the contract.
(e) Partial impossibility
A contract is not discharged simply on the grounds of partial impossibility of some of the objects
of the contract.
Example: HB agreed to let out a boat to Harry (a) for viewing a naval review of on the occasion
of coronation of King Edward VII, and (b) to sail around the fleet. Owing to the King’s illness,
the naval review was abandoned but the fleet was assembled. The boat, therefore, could be used
to sail around the fleet. Held, the contract was not discharged.

BY LAPSE OF TIME
The Limitation Act 1908 states that in case of breach of a contract legal action should be taken
within a specified period, called the period of limitation, otherwise the promisee is debarred from
instituting a suit in a court of law and the contract stands discharged. The period of limitation for
simple contracts is three years.
Again, where “time is of essence in a contract”, if the contract is not performed within fixed
time, the contract comes to an end.
Example: A owed Rs. 5,000 to B. The last date for repayment of the loan expired but B did not
sue A until 3 years. B lost the right to recover.

BY OPERATION OF LAW
A contract is discharged by operation of law in following cases:
1. Death
On the death of the promisor a contract involving the personal skill or ability is discharged. In
other contracts, the rights and liabilities of the deceased person pass on to his legal
representatives.
Example: Ahmad (an artist) promises to paint a picture for Bilal by June 22, 2013 for Rs.
100,000. Ahmad dies before completing the picture. Here it is a contract involving personal skill
and on death of Ahmad the contract will be discharged.
2. Insolvency
A contract is discharged by the insolvency of one of the parties when an Insolvency court passes
an order of discharge exonerating the insolvent from liabilities on debts incurred prior to his
adjudication.
Example: A promises to sell his car to B for Rs. 200,000. Before the performance, A was
declared insolvent. The contract is discharged.
3. Merger Of Rights
Where an inferior right under the contract merges into a superior right under the contract, the
former stands discharged automatically.
Example: Where a part time lecturer has been made a full time lecturer, the contract of part time
lectureship is discharged by merger.
4. Unauthorised Material Alteration
A material alteration made in a written document or contract by one party without the consent of
the other, will make the whole amount void.
Example: A executes a pro-note in favour of B for Rs. 300. B exceeds the amount from 300 to
3000 by alteration. A may refuse to pay Rs. 300.
5. Same Identity
When the promisor becomes the promisee, the other parties are discharged e.g. negotiation back
in case of negotiable instrument i.e. creditor to himself becomes a debtor of the same loan.
Example: Azam gives a promissory note to Babar. Babar endorses the note in favour of Sarfaraz
who in turn endorses in favour of Azam. Here, Azam is both the promisor and the promisee and
hence the other parties are discharged.

BY BREACH OF CONTRACT
Breach also brings to an end the obligations created by a contract on the part of each of the
parties. Of course, the aggrieved party can sue for damages.
1. ACTUAL BREACH [Section 38]
It occurs when a party fails to perform the contract on due date or does not perform the whole of
contract properly by the due date.
Example 1: A agrees to deliver 5 bags of wheat on 1st March. He does not deliver the wheat on
that day. This is an actual breach.
Example 2: A agreed to deliver 500 shoes to B. The shoes were to be delivered in instalments.
After 200 shoes had been delivered, B declared that no more shoes were required. B has
committed an actual breach of contract.
2. ANTICIPATORY BREACH [Section 39]
A party, prior to the due date for performance, shows an intention (expressly or impliedly) not to
perform his contractual obligations.
(a) Express anticipatory breach
It occurs where a party actually states that he will not be performing his contractual obligations
Example: A agrees to supply wheat to B on 1st July. On 15th June, A informs B that he will not
supply the wheat. This is express anticipatory breach of contract.
(b) Implied anticipatory breach
In this case, a party by his own voluntary act disables himself from performing the contract.
Example: A promise to sell his horse to B on 1st June. Before that date, A sells the same horse
to C. This is implied anticipatory breach of contract.
Effect Of An Anticipatory Breach
In case of anticipatory breach, the aggrieved party has the following two options:
Options to the aggrieved party
1) Rescind the contract and claim damages for breach of contract without waiting until the
due date for performance. In that case damages will be equal to the difference between
the price prevailing on the date of breach and the contract price. [Section 73]
2) Treat the contract as operative and wait till the due date for performance and claim
damages if the promise still remains unperformed and damages will be equal to the
difference between the price prevailing on the due date of performance and the contract
price.
Consequences of treating contract as operative
If the aggrieved party treats the contract as operative and waits till the due date for performance,
the consequences of anticipatory breach will be as follows:
 The promisor may perform his promise on or before the due date of performance and the
promisee will be bound to accept the performance.
 The promisor may take advantage of the discharge by supervening impossibility arising
between the date of breach and the due date of the performance and in such a case, the
promisee shall lose his right to sue for damages.
Example: Azam, a farmer agrees to sell to Babar his entire crop of 10 tons of wheat @ Rs. 8,000
per ton to be delivered on 20th November. On 1st November, Azam informs Babar that he is not
going to supply the goods. Babar decided not to rescind the contract on 1st November and to
wait till 20th November. On 19th November, the entire crop was destroyed by fire without the
fault of either party. Since the contract becomes void on the ground of impossibility of
performance, Babar had lost the right to sue Azam for damages.

REMEDIES FOR BREACH OF CONTRACT

Meaning of remedy
A remedy can be defined as a manner in which a right is enforced or satisfied by a court when
some harm or injury, recognized by society as a wrongful act, is inflicted upon an individual.
Remedies can be categorized into the following types:
1. Common law remedies
Damages and action for the price are more frequently sought remedies for breach of contract,
since they arise as of a right. The object of such a remedy is not to punish the party at fault but to
compensate the aggrieved party (pecuniary loss) as far as money can do so.
2. Equitable remedies
Equitable remedies are the court ordered action that directs parties to do something (specific
performance) or not to do something (injunction). In other words, equitable remedies are only
appropriate in specialised circumstances e.g. where monetary damages would be inadequate
compensation for the breach of an agreement.
3. Quantum meruit claim
Quantum meruit claim is categorized as a claim in quasi contract. Quantum meruit is likely to be
sought where one party has already performed part of his obligations and the other party then
repudiates the contract. When the aggrieved party elects to treat the contract as terminated, he
may claim a reasonable amount for the work done.

Remedies for breach

Whenever there is breach of a contract, the injured party becomes entitled to any one or more of
the following remedies against the guilty party:
1. Rescission of the contract
2. Suit for damages
3. Suit upon quantum meruit
4. Suit for specific performance
5. Suit for an injunction
The law relating to last two remedies is in Specific Relief Act.

1. Rescission of contract [Section 39 and 75]

In case of breach, the aggrieved party may rescind the contract and may sit home quietly.
However, in case the aggrieved party intends to sue the guilty party for damages for breach of
contract, he has to file a suit for rescission of the contract. When the Court grants rescission, the
aggrieved party is freed from all its obligations and become entitled to compensation for any
damage which he has sustained through nonfulfilment of the contract. In practice (not always), a
‘suit for rescission’ is accompanied by a ‘suit for damages’ etc in the same plaint.
Example 1: A contract to supply cement to B on 15th APRIL. B agrees to pay the price on
receipt of goods. A does not supply on due date. B is to discharge from liability to pay. B can
rescind and claim damages.
Example 2: A pledges ornaments to B and gets a loan. A does not returns the loan to B. B may
rescind the contract and refuse to return the ornaments
2. Suit For Damages [Section 73]
Damages are a monetary compensation allowed to the injured party for the loss or injury suffered
by him as a result of the breach of contract. If actual loss is not proved, no damages will be
awarded.
Rules Regarding Amount Of Damages
 The object of awarding damages is not to punish the party at fault
 The injured party is to be placed in the same position as money can do if the contract had
been performed
 The aggrieved party can recover actual loss suffered by him arising naturally.
 The fact that damages are difficult to assess does not prevent the injured party from
recovering.
 Where no real loss arises nominal damages are awarded.
 If the parties fix any amount as damages in case of breach of contract then the court will
allow only reasonable amount.
 It is the duty of the injured party to minimiz the damage suffered
Assessment Of Damages
1. Ordinary damages: An injured party is entitled to receive from the defaulter party such
damages which naturally arose in the usual course of things from such breach. No
compensation is to be given generally for any remote or indirect loss sustained by reason
of the breach.
2. Special damages: An injured party is entitled to receive from the defaulter party such
damages which the parties knew, when they entered into the contract as likely to result
from the breach.
3. Duty to mitigate: damages suffered It is the duty of the injured party to mitigate
damages suffered as a result of the breach of contract by the other party. He must use all
reasonable means of mitigating the damage, just as a prudent man would, under similar
circumstances in his own case.
4. Measure of damages: The injured party is to be placed in the same position, so far as
money can do, as if the contract had been performed

3. Quantum meruit
The term Quantum Meruit means “as much as earned or deserved.” In case of breach of
contract the application or non-application of the term quantum meruit varies depending
upon the terms of the contract. Further, the divisibility or indivisibility of performance of the
contract may also be taken into account. The aim of such an award is based on an implied
agreement to pay for what has been done. Quantum Meruit is likely to be sought where one
party has already performed part of his obligations and the other party then repudiates the
contract. Provided the injured elects to treat the contract as terminated, he may claim a
reasonable amount for the work done.
 Example 1: Qasim as owner of a magazine engaged Paul to write a book to be published by
instalments in his magazine. After a few instalments were published, the publication of the
magazine was stopped. It was held that Paul could claim payment for the part already
published.
Example 1: Alisha, a singer contracts with Babar, the manager of a theatre, to sing at his
theatre for two nights in every week during the next two months, and Babar engages to pay
her Rs. 100 for each night's performance. On the sixth night, Alisha wilfully absents herself
from the theatre, and Babar, in consequence rescinds the contract. Babar must pay Alisha for
the five nights on which she had sung.
4. Specific performance
Suit for specific performance is an equitable doctrine that compels a party to execute the
agreement according to its terms where monetary damages would be inadequate
compensation for the breach of an agreement. Specific performance is a discretionary
remedy, which is allowed only in a limited number of cases some of them are listed below:
 Monetary compensation is not adequate
 Actual damage cannot be ascertained due to non-performance
 It is probable that compensation in money on non-performance cannot be obtained
 There is a contract for the sale of rare commodities
 There is a contract for the sale of land / building / apartment / houses
Example 1: Azam agreed to sell an old unique painting to Babar for Rs. 500,000. Subsequently,
Azam refused to sell the painting. Here, due to unique subject matter, monetary compensation is
not adequate and Babar may file suit against Azam for the specific performance of the contract.
Example 2: Azam agrees to sell two rare Pakistani Handmade carpets to Babar for Rs. 2 million.
In case of breach by Azam, Babar may compel Azam to perform the contract specifically,
because there is no standard for ascertaining the actual damages which would be caused by the
non-performance by Azam.
5. Injunction
Suit for injunction is also an equitable remedy demanding court’s stay order. Injunction means
an order of the court which abstains from wrong doing. Where a party to a contract does
something which he promised not to do, the court may issue an order prohibiting him from doing
so. Thus, injunction is a preventive relief. It is particularly appropriate in case of anticipatory
breach of contract where damages would not be an adequate relief.
Example 1: Azam agreed to play cricket for Apple Cricket Club during the contract period of 3
years. During the contract period, Azam made a contract with Orange Cricket Club and refused
to play cricket for Apple Cricket Club. Here, Azam could be restrained by injunction from doing
so.
Example 2: Sahiba, a film actress, agreed to act exclusively for Y Films for a year and for no
one else. During the year she contracted to act for Z Films. Here, she could be restrained by
injunction from doing so.
6. Restitution
It means return of the benefit received by one party to the contract from the other under a void
contract or a contract that has been rescinded. When a contract becomes void it needs not to be
performed by either party.
Example: Akram pays Babar Rs. 1 million in consideration of Babar’s promising to marry Sana
(Akram’s daughter). Sana is dead at the time of promise. The agreement is void but Babar must
repay Akram Rs. 1 million.

KINDS OF DAMAGES
1. Ordinary or General or Compensatory damages

These are such damages as may fairly and reasonably be considered as arising naturally and
directly in the usual course of things from the breach of contract itself. In a contract of sale of
goods, the damages payable is the difference between the contract price and the market price
at the date of breach.
Example 1: A contracts to pay Rs.1m to B on 1st January. A could not pay on that day. As a
result, B is totally ruined. A is liable to pay B only principal sum and interest on it.
Example 2: H delivered the shaft to B, a carrier, to take it to the manufacturer. H did not tell
B that delay would result in loss of profits. The delivery of shaft was delayed and the mill
remained closed for a long period. H sued B for loss of profit. Held, that B was not liable for
loss of profits.
2. Special damages

They are such remote losses which are not the natural and probable consequence of breach.
These can be claimed only if the circumstances which would result in a special loss in case of
breach of contract are brought to the notice of the other party. It is important that damages
must be in contemplation of the parties at the time of making the contract. Subsequent
knowledge of the special circumstances will not create any special liability on the guilty
party.
Example 1: A contracts C to buy 1 ton of iron for Rs.80,000. A also contracts to sell B 1 ton
iron for Rs.1 Lac. A informs C about the purpose of contract. C fails to supply. As a result, A
cannot supply to B. C is liable for loss of profit which A would have earned from B.
Example 2: S delivered his samples to NRW Co. for exhibition at new castle. He wrote on
consignment “must be at new castle on Monday certain”. Due to negligence, the goods
reached after the show. The NRW Co. was aware of the object of carrying the goods. Held, S
could claim special damages.
3. Exemplary (vindictive) damages

Exemplary (vindictive) damages are those which are awarded with a view to punish the
wrong doer and not primarily with an idea of awarding compensation to the injured party.
The court may award these damages in case of:
 a breach of promise to marry, where damages shall be calculated on the basis of
mental injury sustained by the aggrieved party.
 wrongful dishonour of a cheque by a banker. In case of wrongful dishonour of a
cheque, the rule is smaller the amount of the cheque, larger will be the amount of
damages awarded. A trader may recover such damages as wrongful dishonour of
cheque shall adversely affect his goodwill but a non-trader whose cheque is
wrongfully dishonoured will have to prove the loss of goodwill before claiming such
damages.
Example 1: ABC Bank refused to honour the cheque issued by Alpha Traders (AT) to its
suppliers despite the fact that sufficient funds were available in AT’s account. AT filed a suit
for damages stating that wrongful dishonour has adversely affected its goodwill. The court
may award exemplary damages.
Example 2: ABC Bank refused to honour the cheque issued by Alpha Training Centre
(ATC) despite the fact that sufficient funds were available in ATC’s account. ATC filed a
suit for damages stating that wrongful dishonour has adversely affected its goodwill. The
court may award exemplary damages provided that ATC proves the loss of goodwill.
4. Nominal damages

Nominal damages are awarded where the injured party has sustained damage of a short but
not of a substantial nature to be reckoned.  Where the breach is technical and injured party
has no intention of performing his part of the contract  Where the injured party has not
suffered any actual damage or fails to prove that he has  Where damage is due to the fault
of the injured party
Example 1: Azam promise to sell cement to Babar for Rs. 200 per bag. Azam does not
supply. At the time of breach, the market rate of the cement is the same. Babar is entitled to
nominal damages.
Example 2: Sahil contracted to buy a Hillman car from a car dealer Qasim but later refused
to buy. Qasim sold the same car to another customer and suffered no loss. Qasim sued for
loss of profit. Held, he could recover nominal damages.
5. Damages for inconvenience and uneasiness

If a party has suffered physical inconvenience and discomfort due to breach of contract, that
party can recover the damages for such inconvenience and discomfort.
Example: Damages for inconvenience and uneasiness Hakim with his wife and children
booked a ticket for a midnight train, to be transported to a particular place where he lived.
They were, however, transported to a wrong place and they had to walk several miles on a
drizzling night and as a result, his wife caught cold and he had to incur some medical
expenses., It was held that he could recover compensation for inconvenience and not for
medical expenses for the sickness of his wife because it was very remote consequence.
6. Liquidated damages vs. Penalty clause [Section 74]

When the parties to a contract at the time of formation of contract, specify a sum which will
become payable by the party responsible for breach, such specified sum is called Liquidated
Damages. This amount represents a genuine attempt to work out what the loss would be in
the event of such a breach. If a contract states that a particular sum is to be paid on breach of
the contract and that sum is not the genuine pre-estimate of the loss that would be suffered in
the event of breach or that the sum is disproportionate to the actual loss likely to result due to
breach this is penalty clause. The court can decrease but not increase the penalty stipulation.
The liquidated damages clause is enforceable. On the contrary, the enforceability of penalty
clause is at the discretion of the court.
Example 1: Dawood sold tyres to Naveed who contracted not to re-sell them, or offer them
for sale, at a price below Dawood’s list price. Naveed agreed to pay a sum of Rs. 500 by way
of liquidated damages for every breach of the agreement. Later, Naveed sold tyres at less
than the list price. Dawood filed a suit for damages for breach. Held, the sum fixed by the
parties was a genuine pre-estimate of the damages and not a penalty.
Example 2: Azam contracts to pay Rs. 20,000 as liquidated damages to Babar, if he fails to
pay Rs. 500,000 for goods supplied on a given day. Azam fails to pay on that day, Babar can
recover damages not exceeding Rs. 20,000.
Example 3: Azam contracts with Babar to pay B Rs. 2 million, if he fails to pay Babar Rs. 1
million on a given day. The double amount is disproportionate to the likely actual loss. This
is a penalty clause. Azam fails to pay Babar Rs. 1 million on that day. Babar is entitled to
recover from Azam such compensation as the Court considers reasonable.
Example 4: Azam undertakes to repay Babar a loan of Rs. 1,000,000 by five equal monthly
instalments with a stipulation that, in default of payment of any instalment, the whole shall
become due. This stipulation is not by way of penalty and contract may be enforced
according to its terms.
Example 5: Azam borrows Rs. 1,000,000 from Babar and gives him a bond of Rs. 2,000,000
payable by five yearly instalments of Rs. 400,000, with a stipulation that, in default of
payment of any instalments, the whole shall become due. This is a stipulation by way of
penalty.