Discharge of Contract

Discharge of Contract
The discharge of a contract means the termination of a contractual
relation between the parties to a contract. A Contract terminates
when the rights and obligations of the parties come to an end.
 
Modes of Discharge of Contract:
A contract may be discharged in any of the following modes:
1. Performance
2. Agreement
3. Subsequent impossibility
4. Lapse of time
5. Operation of law
6. Breach of Contract
 Discharge of Contract
1. Discharge by Performance:
When the parties to a contract perform their promises,
the contract is discharged. If one of the parties performs
the promise, his obligation alone is discharged.
The performance may be actual performance or offer to
perform.
a. Actual Performance:
When both parties to a contract fulfil the obligations
according to the terms and conditions of a contract, it is
called actual performance of the contract and the contract
comes to an end. (Sec. 37)
 Discharge of Contract
b. Offer to Perform:
When the promisor offers to perform the promise but
the promisee does not accept the performance, it is
called offer to perform or attempted performance. In
this case, the promisor is deemed to have fulfilled his
obligations. It considered equivalent to actual
performance. The promisor can sue the promisee for
breach of contract. (Sec. 38)
 Discharge of Contract
2. Discharge by Agreement
A contract is discharged by agreement in the following ways.
a. Novation:
Novation of contract means the replacement of an existing
contract by a new contract. The new contract may be formed
between the same parties or new parties. Thus, an old contract
is discharged and a new contract come into existence. [Sec.
62]
Example:
A Owes Rs. 10,000 to B. A rented his house to B for paying the
debt of Rs. 10,000. It is a new contract that terminates the old
one.
 Discharge of Contract
b. Alteration
Alteration of a contract means a change in one or more
terms of contract with mutual consent of parties. An
alteration in a contract discharges the original contract
and creates a new contract. In case of an alteration, the
parties remain the same and only the terms of contract
are changed. (Sec. 62)
Example:
A agrees to supply salt to B on 1 Feb, 2019. Later, A and
B agree to change the date of delivery to 1 March, 2019.
It is alteration of contract.
 Discharge of Contract
C. Rescission
Rescission means the cancellation of a contract by all
parties with mutual consent. A contract may be cancelled
by an agreement between the parties at any time before
its performance. The cancellation of an agreement
releases the parties from their obligations. (Sec. 62)
Example:
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.
 Discharge of Contract
d. Remission
The remission means the acceptance of a lesser
consideration than what was mentioned in the
contract. Where the promisee remits the whole or
some part of promise, contract is discharged. [Sec.
63). 
EXAMPLE
C owes Rs. 5,000 to B. B agrees to accept Rs, 2,000
in full satisfaction of B’s Claim. The whole debt is
discharged.
 Discharge of Contract
e. Waiver
The term waiver means the intentional giving up of a
right which a persons entitled under a contract.
When a party waives his right under the contract, the
other party is released from his obligations.
Example:
A promises to supply rice to B. Later, B releases A
from fulfilling the contract. The contract is discharged
by waiver.
 Discharge of Contract
3. Discharge by Subsequent Impossibility:
When the performance of a contract becomes impossible due to subsequent
reasons which are beyond the control of parties, the contract becomes void and
therefore discharged. It is also called the doctrine of frustration. The following
factors make a contract void. (Sec. 56)

a. Destruction of Subject matter:

When the subject matter of a contract, after the formation of contract, is
destroyed without the fault of promisor or promisee, the contract is discharged.
But if the destruction of subject matter is caused by fault of any party, he is liable
for damages.

Example:
B lent his hall to C for a concert. The hall was destroyed by fire before the
concert. The contract was discharged
 Discharge of Contract
b. Change in Circumstances
When some circumstances arise after the formation
of a contract and, as a result, the performance of
contract becomes impossible, the contract becomes
void on the grounds of impossibility of performance.
Examples:
B (seminar organizer) contracts to hire a 30 rooms at
a hotel for a seminar to be held in that hotel on a
particular date. Later on the seminar got postponed.
The contract to hire rooms also discharged.
 Discharge of Contract
C. Death or Personal Incapacity:
Where the performance of a contract depends upon
personal skill or qualification or existence of a
particular person, the contract is discharged on the
illness, incapacity or death of that person.
Example:
A agreed to paint a picture for B. A died before
painting the picture. The contract was discharged
 Discharge of Contract
d. Change of Law
A lawful contract may become unlawful due to a
change in the law subsequently. A Subsequent
change in the law may make the contract illegal and
therefore discharge the contract .
Example:
A promised to sell wheat to B. Before delivery, the
government banned sale of wheat by private traders.
The contract was discharged.
 Discharge of Contract
e. Declaration of War
A contract entered into before the commencement of
war remains suspended during the war. However,
such contract may be restored after the war is over,
if the nature or the contract so permits.
Example:
Qaiser contracts to carry Ahmed’s cargo at a foreign
port. Later, Qaiser’s country declares war against the
country where the port is situated. The contract
becomes void and therefore discharged.
 Discharge of Contract
4. Discharge by Lapse of Time
The Limitation Act, 1908 states that in case of a breach of
contract, legal action must be taken within a specified period. If
the contract is not performed and no legal action is taken by the
promisee within the period of limitation, he is debarred from
enforcing the contract. The period of limitation to recover debt is 3
years. If 3 years expire and creditor fails to file a suit to recover
his amount, the debtor is discharged from his liabilities.
Example:
Akram owed Rs. 5000 to Basit. The last date for repayment of the
loan expired but Basit did not sue Akram until 3 years. Basit lost
the rights to recover and therefore the contract is discharged.
 Discharge of Contract
5. Discharge by Operation of Law
A Contract terminates by the operation of law in the following
cases:
a. Insolvency
Where the court declares a person as insolvent, the rights and
duties of such person are transferred to the official receiver,
After the order of the court, such person is discharged from his
liabilities.
Example:
A promises to sell his car to B for Rs. 2 Lac. Before the
performance of the Contract, A is declared insolvent by court.
The contract is discharged.
 Discharge of Contract
b. Merger
When a contract creating inferior rights for the party
merges into a new contract creating superior rights,
the former contract is discharged.
Example:
If a part-time lecturer is appointed as a permanent
lecturer, the Contract of part time lectureship is
discharged by merger.
 Discharge of Contract
C. Material Alteration Without Consent:
A material alteration means making an unauthorized
change in the material terms of a contract which affects
the rights, liabilities and legal position of the parties to a
contract. If one party makes any material alteration in
the terms of a contract without consent of the other
party, the contract is discharged.
Example:
A executes a pro-note in favour of B for Rs. 300. B
exceeds the amount from Rs. 300 to 3,000 by alteration.
A may refuse to pay Rs. 300.
 Discharge of Contract
6. Discharge by Breach of Contract:
A breach of contract means the failure of a party to perform his
obligations. When a party fails to perform the obligations under
the contract, there is a breach of contract. It discharges the
aggrieved party from performing his obligations. It may be an
actual breach or anticipatory breach.

a. Actual Breach
Actual breach of contract occurs when a party fails to act
according to the terms of contract on the date of performance. If
a party fails to perform the obligations under the contract on the
date of performance, it is called an actual breach of contract.
 Discharge of Contract
If a party has performed a part of the contract but
refuses to perform the remaining part of the contract,
it is called an actual breach of contract during the
course of performance.
 
Example:
Ramiz agrees to deliver 5 bags of wheat on 1st
March to Asad. Ramiz does not deliver the wheat on
that day. It is an actual breach of contract on the date
of performance.
 Discharge of Contract
b. Anticipatory Breach
Anticipatory breach of contract occurs when a party declares his intention
not to perform the contract before the due date of performance. When a
party to the contract communicates to the other party, his intention not to
perform the contract before the due date of performance, it is an express
breach.

Effects of Anticipatory Breach:

In anticipatory Breach the promisee gets the following rights:

He is released from his part of performance under a contract.

He may treat the contract as cancelled and sue the other party for damages.
He may ignore the conduct of the promisor and wait for the time of
performance of contract.
 Discharge of Contract
Example:
Feroze agree to supply wheat to Musa on 1 st July,
2021 but on 10th April, 2021 Feroze inform Musa that
he will not supply the wheat. It is an express
anticipatory breach of contract.