Discharge of contract

PRESENTED BY

A S WAT H Y . P. M
19070
TPS B
 INTRODUCTION
Discharge of contract means end of a contract.
Discharge of contract means termination of the
contractual relationship between the parties. A contract
is said to be discharged when ceases to operate i.e. when
the rights and obligations created by it come to an end.

A contract may be discharged-:

• By Performance
• By Agreement or Consent
• By Impossibility of Performance
• By Lapse of time
• By Operation of law
• By Breach of contract
 Discharge BY performance
Performance means the doing of that which is required
by a contract. Sec.37 provides that “the parties to a
contract must either perform, or offer to perform,
their respective promises, unless such performance is
dispensed with or excused under the provisions of this
Act or of any other law”

When the parties to a contract fulfill their obligations

arising out of the contract with in the time and in the
manner prescribed the contract is said to have been
discharged by performance
Performance may either be -:
 Actual Performance
 Attempted Performance or Tender
Actual performance : When both the parties perform
their promises in the manner and within the time , it is
called actual performance. Performance should be
complete, precise and according to the terms of the
agreement.

Eg: X contracted to deliver to Y at his warehouse on 1st Oct,

100 bales of wool of a particular quality. X brought the wool
of requisite quality to the appointed place on the appointed
day during the business hours, and Y took the delivery of
goods and paid the price.This is an actual performance.
Attempted performance or Tender : Tender is not
the actual performance, but an offer to perform the
obligation under the contract. Where a promisor offers
to perform the contract not in accordance of the terms of
the contract and the promisee has not accepted it is
known as attempted performance.

Eg: X contracted to deliver to Y some wool and has given

some specifications of the wool and X has not supplied wool
according to the specifications given at the time of entering
into contract but with changed specifications. Y has refused
to take the delivery .
 Discharge by agreement
A contract may be discharged by mutual agreement of the
parties. The parties may enter into a fresh agreement which
provides for the extinguishment of their rights and obligations
created by the original contract.

“ Eodem modo quo quid constituitur,eodem modo destruitur”

I.e. a thing may be destroyed in the same manner in which it is
constituted. This means a contractual obligation may be
discharged by agreement which may be expressed or implied.

Eg: A sells a car to B ‘on approval’ with the condition that it

should be returned with in 7 days if it is found wanting in
efficient functioning. B may return the car within seven days if it
is found wanting. Consent to return the car is given to B at the
time of the formation of the contract.
The various cases of discharge of a contract by mutual
agreement are dealt with in Secs 62 and 63 are discussed
below-:

a) Novation(sec 62)- Novation means substituting a old

contract with a new contract. A new contract may be
created with the same parties or with the third party.
Novation should always takes place before the expiry of
the date of performance of the original contract.

Eg: X has to pay Rs 1000 to Y,while Y has to pay the same

amount to Z.The contract to pay Y by X may be substituted
by a new contract between X and Z under which X will pay to
Z.This is a new contract between X and Z terminating the old
one between X and Y.
b) Rescission: It takes place when all or some of the terms of
contract are cancelled by all parties or one party. It may
Total rescission or Partial rescission.

Eg: A and B enter into a contract that A shall deliver certain goods
to B by 15th of March and that B shall pay the price on 1st of
April. A doesn’t supply the goods.B may rescind the contract
and need not pay the price.

c) Alteration: When one or more of the terms of the

contract are altered by mutual consent of the parties. In
such cases the original contract is discharged.

Eg: A agreed to sell some goods to B for Rs.15,000 and B agreed to

pay that amount upon the supply of goods. However before the
supply of goods, B requested A to allow him to make the
payment in three installments for which A agreed.
d) Remission: Acceptance of lesser fulfillment of the terms of
the promise i.e. acceptance of a less sum of
money where more is due. In other words we
can say lesser fulfillment of the promise made.

Eg: X owed Rs 12000 to Y. X paid Rs 10000 to Y and Y accepted it in

full satisfaction. In this case ,X is discharged from his liability of Rs
12000.

e) Waiver: The abandonment of rights by the party who is

entitled to claim the performance of the contract.

Eg: X promised to paint a picture for Y. Afterwards Y forbade him

to do so. In this case ,Y has waived his right ,to claim the
performance. Thus X is no longer liable to perform the promise.
f) Merger: Merger takes place when inferior right merges
into a superior right.

Eg: A holds some property on lease later he purchased the same

property his rights as lessee merges into owner.
Discharge By Impossibility of Performance
Where there is impossibility of performance the contract

is discharged it may take place in a following manners:-

 Existence of the impossibility at the time of formation of

the contract
• It may be Unknown impossibility
• Known impossibility means parties have knowledge
of impossibility but enters into contract with greed.
Such contracts are void ab initio
 Impossibility arising after the formation of the contract.
Impossibility arising after formation of contract

It is also known as “supervening impossibility” or “post

contractual impossibility”
As a general rule impossibility of performance is not
excused. However, if the impossibility is because of the
circumstances beyond the control of the contracting parties
it is excused.
Where impossibility of performance is excused

 Destruction of Subject Matter

 Non-Existence of a thing
 Death or incapacity of the parties
 Change of Law
 Outbreak of war
Where Impossibility is not excused

• Difficulty of performance
• Commercial Impossibility
• Failure of a third party
• Strikes, Lock-outs or civil disturbances
 Discharge by Lapse of Time
As a matter of fact , the contracts must be performed with in
the period of limitation. I.e. the period specified by the
Limitation Act. Where time is the essence of a contract, one of
the parties has not performed his obligations within the
stipulated time, and the aggrieved party do not file a suit for
remedy, contract is said to be discharged by lapse of time.

Eg: A and B entered into a contract feb 1st that A will supply 1000
bales of wool with in 1 month but A didn’t perform his obligation
and B didn’t file a suit for remedy so contract get discharged by
lapse of time
 Discharge By Operation of law
• By death of contracting party/parties

• By insolvency of Contracting party/parties

• By Merger of inferior rights with superior rights

• By unauthorized alteration of terms of contract

unilaterally by one of the contracting parties
Discharge by breach of contract
Where a party to the contract break the obligation which he has
undertaken under the contract the contract stands discharged by
breach of contract. The breach of contract may either be-:

 Actual Breach of contract

a. On the due date of the performance – When one party fails

or refuses to perform his obligation under the contract.

Eg: X agreed to sell his car on 1st June to Y.but on 1st June X
refused to sell his car there occurred a breach of contract
 b) During the performance of the contract – It occurs when a
party fails or refuses to perform the obligation under the
contract during the performance of the contract. It may
either be expressed or implied repudiation.

E g : X a shoe manufacturer contracted with Y a dealer in shoes

to supply him 500 pairs of shoes at a certain price. The shoes

were delivered in instalments .After the supply of 200 pairs of
shoes.Y told X that no more shoes are required .In this case the
breach of contract was done during the performance of
Contract

A n t i c i p a t o r y B r e a c h o f c o n t r a c t

It occurs when a party fails or refuses to perform the obligation

under the contract before the time for performance is due.
 Eg: X contracted to supply to Y 100 pieces of plugs on 15th
December 2010 .But before the due date of performance ,X
informed Y that he cannot supply the plugs. On X’s refusal to
supply the goods ,the anticipatory breach occurs and Y put an
end to the contract.

Rights of the promisee for anticipatory breach of contract

• He can cancel the contract and thereby releasing himself
from his obligations
• He can take legal action immediately or waits till the due
date of performance and takes action after the actual
breach.
• He is entitled to select any of the above whichever is
most beneficial to him.