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ICA, 1872: DISCHARGE OF

CONTRACT
8
8.1 INTRODUCTION
A valid contract gives rise to rights and obligations between the parties. A
contract is deemed to be discharged when rights and obligations arising
out of the contract are extinguished. Thus, the term discharge means the
termination of the contractual relationship. The various modes of dis-
charge of a contract shown in the figure are being discussed as under :
'T

...
8.2 MODES OF DISCHARGE OF CONTRACT
-• I ., ---- ~ -\.. ~ ._ cp - t • • ._ o.• .,,J.; ~•., ••·••• ..:,,.. - • _ ) .• ' "-~ ♦ •-- ,'l- ,4. .l- ..

'
By performance
♦ Actual
By impossibility
of performance
By lapse
of time
By operation of
law
• Attempted ♦ Initial Impossibility ♦ Death
♦ Subsequent Impossibility ♦ Material
Alteration
By mutual consent
or agreement
By brea~:h
l ♦ Merger
♦ Insolvency

• By Express const!nt
♦ By Implied l:onscnt of contrad
(a) Novation ♦ Ai..·tual br~ach
(b) Alteration ♦ Anticipatory
( c) Rescission br~,,ch
(d) Rem~ion
(e) Waiver
FIGURE 5
153
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,
Pltra 8.4 lJNlT 1- INJ)JAN CONTRACT ACT, 1872

• J
; 8.3 DISCHARGE OF CONTRACT BY PERFORMANCE
A t'ont rad is said to be ~tisdmrg~<l by P.crf ~rm_ancc ~hen 6 ~ th
th e Parti~s
to thl~contra,:t fulfil t.hcll' respective obhgal1ons creat ed ~ndc
r the contraq
within the specified time and as per the mann er presc ribed .
Perfo rrnan le
is the usu~l mode of a disch arge of a contr act. Perfo rman
ce may be: (O
Ad ual perfo rman ce; or ( it) Attem pted perfo rman ce or tende
r.
(r) Actual Performance. A contr act is sai~ to b~ ac~ua
lly ~~rfonned
when both the partie s fulfil their respe ctive oblig ation s ansm
g out of
the contr act accor ding to the terms of the contr act.
( i 1) Attempted Performance. It is an offer of perfo rman ce by
the promiser
in acco rdanc e with the conditions laid down unde r Sec.
38. Th~
secti on state s that if the off er of perfo rman ce has not been accep
ted
the prom isor is not responsible for non-p erfor manc e, nor
there by lose his right unde r the contr act.
does h;
8.4 DISC
-~ HARGE OF CONTRACT BY AGREEMENT (SEC. 62)
~
- .-- - - .. - .. - . •·
-

The gene ral rule of law is that a thing may be destr oyed in the
same manner
in whic h it is const ituted . Thus a contr actua l oblig ation may
be terminated
by an agree ment whic h may be express or implied.
Disc harge by impli ed conse nt may take the following shap
es:
(a) Novation. The term 'Novation' implies subst itutio n of a new
contract
in place of existing one. It may involve a new contr act betw
een the
same parti es or there could be chan ge of partie s.

: EXAMPLE
A owes mone y to B under a contract. It is agreed betwe en A, B and
C, that
B shall hence forth acceptC as his debtor, instead of A. The old
contract of
A and B comes to an end and the new contract betwe en B and
C comes
into existence.

Essentials of Valid Novation. Ther e must be

(i) Mutu al conse nt of the parties.
( it) The new contr act must be capab le of enfor ceme nt at
la,v.
( iii) Nova tion must take place befor e the expiry of the
time of
perfo rman ce of the original contr act.
155 CH. 8 - ICA, 1872 : DISCHARGE OF CONTRACT Para 8.4
(b) Alteration. It occurs when one or more of the terms of the contract
are altered by the mutual consent of the parties to the contract.
Alteration may be bilateral or unilateral. The difference between
novation and alteration is that novation may result in change in the
terms or change in the parties while in case of alteration, the parties
remain the same. Thus novation is wider term than alteration.
(c) Rescission. When the parties cancel all or same of the terms of
contract by mutual consent, it is called rescission of the contract.
Similarity in case of breach of a contract, the aggrieved party can
rescind the contract and file a suit against the guilty party for
compensation. The -right of rescission is also available to the
aggrieved party whose consent was not free, in case of voidable
contract. Rescission may be total or partial.
(d) Remission. It means acceptance of a lesser performance than what
was contracted for. Accord and satisfaction is one of the ways in
which a contract gets discharged under English Law. When the
promisee accepts lesser sum than what is due under the existing
contract, is known as accord and the actual payment made by the
promisor is the satisfaction. It may be noted that accord must be
followed by satisfaction to discharge the contract.
According to Sec. 63 the promisee is allowed : •
(i) To dispense with or·remit (wholly or in part) the performance
of the promise, or ·
( it) To extend the time for performance, or
·( iii) To accept ·any other considerati?n than agreed to in the
original contract..

1. A owes B {5,000. A pays to B t 2000 and B accepts in satisfaction of the

whole debt. Here an agreement to pay {2000 is accord and actual payment
is the satisfaction. The whole debt is discharged.
2. A owes B r J0,000 payable after one month. A is unable to discharge his
obligation on the due date and as such makes a_ requ~st toB for the e..•, aenri~n
of time for payment by one week. B enterta~ns As request. The pronme
without consideration is binding and no suit can be brought before the
expiry of the extended credit period.
 .
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-I
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Para 8.5
r
UNJT 1 - INDIAN CONTRACT ACT, 1872
.
, CASE LAW : *Hartchand Madan Go1,al vs. State of Punjab (1973)
½
Facts : A owed ~ 30,000 to B. C, a fricn_d of. A pm~
• --=------
~ 20,000 to B wh(J
accept t'd the same in full satisfaction of his claim agams t A. Subsequently,
B fih~d a suit for the recove ry of the balanc e amoun t of ~ l 0,000. Held .
where a promis ee accept s lesser person ance from a promisor or a third
person, promis or is discha rged from his liability. A, theref ore, was dis.
charge d from his liability.

(e) Waiver. It means aband onme nt of rights by the parties to the

contra ct. No consid eratio n is requir ed for the waiver.
r - -
EXAMPLE
A promis es to paint a picture for B. B afterw ards forbids him to do so.
Waive r of right on the part of B results in discharge of contract.

~ - ---<!!:, .. -.Y-1 -. _ , .... - - - ·-- . .,. . ~

L8~5_1 ~~0S ~l~I_LI~ OF__P.~R!:_q_~~1!!1gh,

Sec. 56 provid es two types of impossibility :
(1) Initia l impos sibilit y or Pre-c ontra ctual Impos sibilit y. An agree-
ment to do an act which at the time of the contra ct is impossible in
itself, such an agree ment is void. It may be ( i) know n to the parties
( e.g., agree ment to make the dead person alive) or ( ii) Unknown to the
partie s at the time of making the agree ment ( e.g., Bilate ral mistake as
to existe nce of the subjec t matter).
(2) Subse quen t (supe rvenin g) Impo ssibil ity or Post-contractual
Impos sibilit y. A contra ct to do an act which, after the contract is
made, becom es impossible or (by reaso n of some event which the
promi ser could not prevent) unlawful, becom es void when the act
becom es impossible or unlawful. In such a case both parties are
discha rged from their respective obligation. It is also known as thr
doctri ne of frustr ation under the English Law.
~ . \'
~ EXAMPLE ~ ________,
A and B contra ct to many each other. Before tile time fi.x ed for th~
marriage, A goes mad. The contract becom es void. ________,,

Applicability of the Doctrine of Subsequent lmposslblllty. It applies in thr

following cases :
157 CH. R • ICA, I 872: UISCI IARGF. OF CONTRJ\ ( T Para 8.5

( 1) Destn, cti~n of the s ubject -matte r. Where the subjec t-matte r of the
contra rt _1s destroyed wi thout the fault of any party before the
contrac_t 15 pcrformed, the contra ct is discharged. But if the subject-
matter 1s d~stroyed due to the fault of any party, he is ]fable fo r the
compe nsation to the other party.
jlltll<o;- ~· _,. - ~

: CASE LAW: Taylor vs. Caldwell (1863)

Facts: Cagree d to let out his musical hall to Tfor a series of concerts. The
hall was acciden tally burnt down before the date of the first concert . T
(the plaintiff) sued C (the defenda nt) for damages for breach of contrac t.
Held, the contrac t had become void and C was not liab]e.

(ii) Chang e of Law. Any subseq uent change in law or a change in the ·
Gover nment policy may render the contra ct illegal and in such cases
contra ct is deeme d discharged or terminated.

: CASE LAW : Shipto n Anderson and Co. vs. Reshipto ( 1918)

Facts : A agreed to sell Ba specific parcel of wheat in a wareho use. Before
the deliver y was given, the wheat was requisitioned by the Govern ment
under statuto ry power. Held, both parties were dischar ged from perfor-
mance of such contrac t.

(iii) Non-e xisten ce or non-oc curren ce of contem plated state of things .

Where a contem plated state of things, which was the sole basis of
the perfor mance of the contra ct changes or ceases to exist, the con-
tract, is discha rged.
tr .. - . . ...

~ CASE LAW: Krell vs. Henry (1903)

Facts : H hired a flat from K for two days to witness the corona tion pro-
cession of the king in 1902. Due to illness of the king the procession had to
be abando ned. K filed a suit against H for the recovery of the rent due.
Held, H (Hirer) was under no obligation to pay the ren~ as the exist~nce ~f
the process ion was the sole basis of the contrac t and tts canl·dla tton dis-
charge d the contrac t.

(iv) Declaration of war. 'Alien friend can contra ~t but ali~~l enemy can-
not'. A contra ct entere d into during peace time remam suspended
· h · ance of war · Howev er, such contra cts may be
d unng t e con1mu
th
resum ed and enforced at the end of e war.
 ~'· .
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//. Para8.5 l1NIT I - lNl>lAN CONTRACT ACT, 1872 ts 8
'

. EXAMPLE
A <'mllrat"f.o; to take in Cargo fur Bat a foreign port. As Governrne ~
ted. ~;·
H'tirds declares war aga;11st the country ;n which the port is situa
red. e
t'tmtn 1ct becomes \loid when war is decla

In ca~e of personal
( ' ·) Dea th or pe1-sonal incapacity of the promisor.
skill and qual'f'
cont ract s, perf orm ance of which depends upon the
illne ss, de~t~
cat!on of the promisor, the contract is discharged. on the
or mca paci ty of such person [Robinson vs. Davison
(1871)]

EXAMPLE
~ contracts to act at a theatre for six months in cons
ideration of a sum paid
m advance by B. On several occasions A is too ill to act.
The contract to act
on those occasions becomes void owing to As illness.

T IMPOSSI-
EXCEPTIONS TO THE DOCTRINE OF SUBSEQUEN
Bll llY .
L·,~ {.•:{✓. ,;,..,,4✓; ~
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• •,

ract or provides no
Sub sequ ent impossibility does not discharge a cont
·
excu se from perf orm ance in the following cases :
or more expen-
(z) Diff icul ty of performance. Unexpected difficulty
se from per-
sive or less profitable performance as a rule, is no excu
rent from diffi-
form ance . It may be noted that impossibility is diffe
but in the lat-
culty. In the form er case performance is not possible
or effort
ter case the prom isor can perform it with mor e cost

CASE lAW : Blackburn Bobbins Co. Ltd. vs. Allen and

Sons (1918)
to be supplied be-
Facts : A sold certain quantity of Fin land timber to B
lied, war broke
tween July and September. Before any timber could be supp
bring any timber
out and transport got disorganized so that A could not
Finland did ,iof
from Finland Held, difficulty of getting the tim8er from
way in which A
discharge the contract as B was not concerned with the
nndnce was pvs·
was going to get timber from Finland. In this case perfo
--- -
sible with more cost or effort.

( iz) Self -Ind uced ~"!possibility. The provisions of Sec.

56 do ~ot_
anses f t
a~::~
whe re imposs1b1hty of the performance of the contract
· · f h ormance is nu
the act or om1ss10n o · t e party. In such case, perf
t59 Cll . 8 · lCA, 1872 : 1>1SC11AR GP. 011 CONTRA Para 8.5
CT
t.'XCUSL'd.Thu s if a person is hcl<l guilt y uf a crime and
therefore he
foils to pl'rf orm his par t of obligation, he is not
<lischargc<l.
(iii) Cornnrercial Impossibilit_y. It occ urs
when th e per form anc e uf a
prom is~ bccorncs cos tlier, less profitable and mor
e dan ger ous, per•
formance is not exc used in suc h cases. Com
mer cial impossibility
may a1isc due to sudden cha nge in the pric e
level, economic policies
of the Government, availability of raw mat
erial at a higher cost,
devaluation of rup ee and declaration of war
etc.
(iv) Imp oss ibil ity due to the Con duc t of a Thi
rd Person. Wh ere a con-
trac t cou ld not be per form ed bec aus e of the
con duc t or def aul t of a
thir d per son , the doc trin e of sub seq uen t
impossibility doe s not
excuse the per form anc e.

i CASE LAW: Fulchand vs. Pragdas (1923)

Facts : X, a who lesa ler ente red into a con trac
t with Y for the sale of a
cert ain type of cloth to be man ufac ture d by
Z, a man ufac ture r of cloth. Z
did not man ufac ture the goods. Held, Xwa s
not disc harg ed from the con -
trac t and was liable to Y for damages.

(v) Stri kes , Loc kou ts and Civ il dist urb anc
es. Unf ore see n eve nts like
strikes, lock out s and civil disturbances do not
exc use per form anc e
unless the re is a specific clause in the con
trac t providing tha t in
suc h cases con trac t nee d not be per form ed
or tha t the tim e is to be
exte nde d for the per form anc e of the con trac
t. Once suc h eve nt is
over, per form anc e of the con trac t is possibl
e.
· CASE LAW: Jacob vs. Credit Lyonnais (188
I 4)
Facts : X agre ed to supply cert ain goods to
Y, whi ch was to be imp orte d
from Algeria. Due to riots and civil dist urba nce
in that cou ntry goods cou ld
not be imp orte d. Held, Y was not excu sed for
the non -per form ance of the
con trac t.

(vq Failure of one of the objects. Wh ere the con trac

t is
ente red into for
several objects, failure of one of the objects
does not exc use the
per form anc e of the whole con trac t.
Effects of Subsequent Imposslblllty
(a) Contract becomes void . Sec. 56 par a
2 lays dow n that "A con trac t
to do an act which, afte r the con trac t is mad
e bec ome s void whe n
the act bec om es impossible or unlawful". Thu
s it covers all tho se
 ~
UNIT I - INDIAN CONTRACT ACT, 1872

cases where performance is excused on the ground of subseque

.
1mposs1'b·1·
11ty. nt
( b) Compensation for loss through non-performance of act. Sec.
56
Para 3 lays down:
•where one person has promised to do something which he knew
or. with reasonable diligence. might have known, and which th~
promisee did not know to be impossible or unlawful, such prornisor
must make compensation to such promisee for any loss which such
promisee sustains through the non-performance of the promise".
~ -. ~- - -·--. ---,
t EXJ:'MPlE 1
A contracts to marry B, being already married to C, and being forbidden
by the law to which he is subject to practice polygamy. A must make com.
pensation to B for the loss caused to her by the non-performance of his
promise.

( c) The principle of restitution applies. Sec. 65 provides that "when

an agreement is discovered to be void, or when a contract becomes
void, any person who has received any advantage under such agree-
ment or contract is bound to restore it, or to make compensation
for it to the person from whom he received it."
~ , ••...,.,. ., r_,,.,,_. ::,_ .,. ,.._,,,. Y, ' -~ ,j

f- EXAMPLE !
f• '

A pays B 1,000 rupees, in consideration of Bs promising to marry C, A's

daughter Cis dead at the time of the promise. The agreement is void, but
B must repay A the 1,000 rupees.

Contract must be performed within stipulated time or reasonable tune.

Where "time is of essence of a contract." If the contract is not performed
within time period, the contract is discharged and the innocent party need
not perform his promise and may institute a suit for a damages against the
other party. .
The Law of Limitation Act, 1963 provides that ·"A contract should be
performed within~ s~ecifie~ P~ri~d (period of limitation). If the proin:is;;
does not enforce his ~ghts withm tlffie_prescribed by the Act, he is ~eP:1v is
of his remedy at law · In th e case of contracts, the period of lim1tat1°11
. '·
 CH. 8 · ICA, 1872 : DlSCI.IARGE OF CONTRACT
Para 8.8
t61
t\,rcc years. Aft.er the expiry of this period the court debars the promisec
ft1>n1 taking legal action. Thus, lapse of time discharges a contract.

rEXAMPLE !
Xbuys vohas Air conditioner on credit basis from Y where the price is to
be paid after one month. If Xfails to perform his obligation and Y docs not
institute a suit against X for the recovery of price within three years, the
contract terminates by lapse of time.

~ 8.7 ~l~~HAR.G~ BY BREA~~ OF C~NTR~CT.

When a party to the contract without lawful excuse fails to perform the
obligation imposed upon him, he is said to have committed breach of
contract. In case of breach of contract, the injured party has a right of
action for damages against the defaulter party.
Note. For details refer to Chapter 10 'Breach of Contract.'

ra:a oiscHARGE OF.CONTRACT 'sv OPERATION OF.LAW .

~
~

(a) Death. In contracts where personal qualifications of the promisor

such as skill, knowledge or ability are the considerations for the con-
tract and in such cases contracts need to be performed in person,
the contract stands terminated on the death of the promisor.
In other contracts, promises bind the representatives of the promi-
sors in case of the death of such promisors before performance,
unless a contrary intention appears from the contract (Sec. 37).
Death of the promisor terminates the contract in case it requires
use of personal skill e.g., singing, acting or dancing, etc.
1
EXAMPLES
1. A promises to deliver goods to B on a certain day on payment of r 1,000.
A dies before that day. A's representatives are bound to deliver the goods to
B, and B is bound to pay r 1,000 Lo As representatives.
2. A promises to paint a picture for B by a certain day, at a certain price. A
dies before the day. This contract of personal nature cannot be entered
either by As representatives or by B. The contract gets terminated auto-
matically on the death of A.
 UNIT I - INDIAN CONTRACT ACT, 1872
7
( vi) Declaration of war is not an excuse for non-performance of a contract
( vii) The alteration with the consent of the party discharges the contract. ·
( viiz) Rescission of the contract means termination of the contract.
( ix) Novation can be made by a change in the terms of the contract or a chan
. h ~
m t e contracting parties.
(x) ~e breach of a contract means failure of a party to perform his obliga,
hon
Hints to True or False Statements
True Statements: (1) (it), (v), (vii), (viii), (ix) and (x)
1

False Statements :
(iii) Supervening impossibility is not an excuse for the non-pe.-formancc of a
contract in aU cases. The doctrine of subsequent impossibility is not appli-
cable in certain cases (e.g., Difficulty of performance, commercial impos-
sibility etc.)
(iv) In case of post-contractual impossibility, the contract becomes void and
not voidable when impossibility arises.
( vi) Declaration of war is an excuse for non-pcrformancc of a contract. Acon-
tract entered into during peace time remains suspt:rnkd during thr con-
tinuance of war.