Contracts are not just about making promises—they are about fulfilling them. In business and daily life, agreements only create value when they are carried out properly. This is where the concept of contract performance and its related rules under the Indian Contract Act, 1872 comes into play. This unit helps us understand how contracts are performed, what happens when they are breached, and the special types of contracts that businesses and individuals often deal with.
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Performance and Discharge of Contracts
Performance of Contract refers to the act of carrying out the promises made in the agreement. For example, if A agrees to deliver goods to B for ₹50,000, then delivering goods and paying money is the performance of that contract.
Discharge of Contract means the ending of the contract, releasing both parties from their obligations. Discharge can happen in several ways:
By performance (when both parties complete their promises)
By mutual agreement (both decide to cancel or alter the contract)
By impossibility (when performance becomes legally or physically impossible, such as destruction of goods)
By lapse of time (contract not performed within the limitation period)
By operation of law (like bankruptcy or death)
Breach of Contract and Remedies
Sometimes, a party fails to perform their obligations. This is called a breach of contract. For instance, if a supplier does not deliver goods on time, it is a breach.
The law provides remedies to the aggrieved party, such as:
Damages – Monetary compensation for the loss suffered.
Specific Performance – A court order to compel the defaulter to perform the contract.
Injunction – Restraining someone from doing something against the contract.
Rescission – Cancelling the contract altogether.
These remedies ensure fairness and protect the interest of the injured party.
Special Types of Contracts
Apart from general contracts, the Indian Contract Act also recognizes special contracts, which are common in business and personal dealings:
Contract of Indemnity – A promise to protect the other party from loss. Example: Insurance contracts.
Contract of Guarantee – A contract where one person promises to pay the debt or perform the duty of another in case of default. Example: Bank guarantees.
Contract of Bailment – Delivery of goods by one person (bailor) to another (bailee) for a specific purpose, with an obligation to return. Example: Leaving clothes at a dry cleaner.
Contract of Pledge – A special type of bailment where goods are delivered as security for repayment of a loan. Example: Pledging gold to a bank.
Contract of Agency – When one person (agent) is authorized to act on behalf of another (principal). Example: A stockbroker buying shares for a client.
Each of these contracts comes with rights, duties, and termination rules that ensure clarity and accountability.
Why This Matters in Business
Understanding contract performance and remedies is crucial for managers, entrepreneurs, and professionals. In business, failure to perform contracts can lead to disputes, financial losses, and reputational damage. At the same time, knowledge of special contracts helps in handling real-world scenarios like taking loans, hiring agents, or entering into insurance agreements.
Conclusion
Unit 2 of Business Law builds on the basics of contracts by explaining how agreements are carried out, when they end, what happens if they are broken, and the role of special contracts. From indemnity and guarantee to bailment, pledge, and agency, these concepts are highly relevant in the modern corporate world.