Discharge of contract

Contract Act
1872
Course Outcome
CO Title Level
Number

CO-1 The student will be able to demonstrate the acquaintance Understanding

of himself/ herself with Legal Process and negotiable
instruments
CO-2 The student will be able to explain the new and Understanding
contemporary developments in Indian Corporate Law
CO-3 The student will be able to analyse the Understanding
differencebetween the negotiable instruments and also
about the responsibility of the business towards the
society.

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Discharge of Contract

• Formation of the Contract

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• Performance of Reciprocal Promises

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• Discharge of Contract
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Discharge of Contract
• But performance is not the only way by which a contract
may be discharged.
• A contract can be discharged by a number of ways apart
from the performance by the parties to the contract.
• Sometimes, it may be discharged because a party commits a
breach or the performance becomes impossible or by lapse
of time.

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1) Discharge of Contract by Performance
• When both the parties perform their part of the obligation in a
contract, the contract is said to be discharged.
• Contract can be discharged
• Either actual performance or
• Offer of performance i.e. Tender

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2) Discharge by Lapse of Time
• A contract must be performed by the parties of contract within the
specified time (if agreed between the parties) or within the
reasonable time (where no time period was fixed between the
parties)

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3) Discharge by Operation of Law
• Merger
• Death
• Alteration without consent
• Insolvency
• Merger
• If in the place of a lower security, a higher security is accepted, the lower
security will be deemed to be merged in the higher security and the party
concerned shall be discharged from its obligations in respect of the lower
security.
• E.g. A holds a certain property on lease, subsequently he buys that property.
His lower security rights of a lessor have now been merged with the higher
security rights of ownership of the property.

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• Death
• Where performance of a contract is required to be made in person,
death of the promisor will discharge the contract.
• In case of contract of non-personal nature, the rights and liabilities
of a deceased person pass to his legal representatives.
• Alteration without consent
• An alteration of a written contract made without the consent of
the other party has the effect of discharging the contract provided
the alteration is of material part.
• Insolvency
• When a person is adjudged a bankrupt or insolvent by the court,
he is thereby discharged from his debts and other obligations.

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4) Discharge by Forming an Agreement
(What has been created by agreement may be extinguish by agreement)

A. Novation
B. Remission
C. Rescission with Restitution
D. Material Alteration
E. Waiver
F. Accord and Satisfaction

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A. Novation
• Novation is when the parties to the contract agree to substitute the
existing contract with a new contract.
• Hence, the parties to the contract decide to discharge the old
existing contract between them by forming a new contract.
• This new contract could be either between the new parties or same
parties.
• Essentials of Novation:-
• Mutual Consent of parties is must.
• The original contract should be in existence.
• The new agreement must be enforceable and valid.
• Novation must happen before the occurrence of breach of old
contract.

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• Kinds of Novation:-
• Old parties, New contract
• e.g. A agreed to manufacture 10 tables and deliver them to B, for
which B shall pay A Rs.2000 per table. Now A & B mutually
agree, that B shall supply wood to A for manufacturing table and
the cost of each table will be reduced by the supply of wood.
• New parties, Old contract
• Navi had to pay Radha Rs.50000 and Radha had to pay same
amount to Kaanchi. Navi, Kaanchi and Radha agree mutually
that Navi would pay Rs.50000 to Kaanchi.

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B. Remission
• Remission is an agreement to receive less that what was legally due.
• When one agrees to accept a lesser promise, it results into
discharge of the whole promise.
• E.g. A owes B Rs.5000. A agrees to pay B Rs.1500 in satisfaction of
the whole debt to which B agrees. The whole debt gets discharged.
C. Rescission
• Rescission means cancelling the contract. The party has been given
a legal right to rescind or cancel or avoid the contract when:
• The contract becomes voidable contract for flaw in consent.
• The other party commits breach of contract.
• Rescission with the mutual consent of parties.
• When the contract is rescinded, the contract gets discharged.

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D. Material Alteration
• Where the parties form a contract and the party who has the
custody (possession) of the documents of contract alters it without
the consent of the other and such alteration is about material facts,
it would amount to discharge of the contract.
• E.g. The word ‘partner’ deleted from a deed, the date of payment
changed from 1st to 10th and the word ‘and’ substituted by ‘or’. The
party making such alterations are not permitted.
E. Waiver
• A party to a contract may release or discharge the other party from
performance by abandoning (waiving off) one’s own right to
demand performance.
• E.g. A painter agreed to paint Tina’s picture. In return, Tina was to
pay him Rs.10000. The painter painted Tina’s picture but waived off
his right to receive Rs.10000. Hence the contract got discharged.
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F. Accord & Satisfaction
• Accepting any other satisfaction than the performance originally
agreed is known as Accord and Satisfaction.
• Accord is the agreement by which the obligation is discharged.
• Satisfaction is the consideration which makes the agreement
operative.
• E.g. A owes B Rs.1000. B agrees to accept Rs.750 in full satisfaction.
The agreement to pay Rs.750 is an accord and the actual payment is
the satisfaction.

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5) Discharge of Contract by Breach
• When the parties to the contract do not perform their part of the obligation, they
are said to commit breach of contract.
• Breach of contract discharges the contract.
• The party may commit breach by:
• When the party fails to perform the contract.
• When the party does some act whereby the performance becomes
impossible.
• When the party intentionally refuses to perform.
• Breach is of types:
• Actual Breach
• Anticipatory Breach
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Actual Breach
• Breach when performance is actually due:
• When the performance is actually due and the party refuses to
perform, he commits Actual Breach.
• E.g. S agrees to supply 1500 units of Product X to R on 15th Sept, 2018.
S does not supply units on that day. There is actual breach of contract
by S.
• Breach during the performance of the contract
• Actual breach also occurs when during the performance, the party
refuses to perform the contract.
• E.g. Suhail agreed to supply 25 tables to Rohan on 1st Jan, 2018. On 1st
jan, 2018, after Sihail had delivered 15 tables, he refused to supply the
balance 10 tables. Held, Suhail committed actual breach of contract.
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Anticipatory Breach
• When the party refuses to perform the contract before the due date of performance,
he is said to committing Anticipatory Breach of contract.
• Anticipatory breach can be done in two ways:
• Express Communication: Where the party expressly tells or intimates the other
party that he shall not perform his part of the obligation on the date of
performance.

• Implied Communication: Where the party does not expressly communicates but
does some act which makes his performance impossible.

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• If he choose option B:
• The contract is not discharged yet;
• The contract is treated as alive till the due date;
• The party gets a chance to perform until due date arrives;
• If the party performs till due date then the contract is not discharged at all.

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6) Discharge by Impossibility of
Performance

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A. Section 56 (1): Impossibility existing at the time of making an agreement (or) Initial Impossibility
• Impossibility existing at the time of making an agreement KNOWN TO THE PARTIES
• E.g. A promises that he shall find treasure by magic for B. This agreement is void-ab-initio.
• Impossibility existing at the time of making an agreement UNKKNOWN TO THE PARTIES
• E.g. A agrees to sell his horse to B. Both are unaware of the fact that the horse is dead.

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B. Section 56 (2): Impossibility of performance arising subsequent to the formation of contract (or)
Subsequent Impossibility
• The contract becomes a void contract when the performance becomes impossible because of certain
external causes beyond the control of parties to the contract (Supervening Impossibility).
• E.g.
• Destruction of Subject Matter
• Death or Personal Incapacity
• Change of Law
• Declaration of War

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THANK YOU