Discharge of Contract

Modes of discharge

After the formation of a contract, the next stage is reached,

namely, the fulfilment of the object the parties had in mind.

When the object is fulfilled, the liability of either party under the contract comes to
an end. The contract is then said to be d ischarged. But “performance” is not the
only way in which a contract is discharged.
A contract may be discharged:

(1) by Performance;

(2) by Impossibility of Performance; (3) by Modification; and

(4) by Breach.
PERFORMANCE OF CONTINGENT CONTRACTS

Definition
The expression “contingent contracts” is defined in Section 31 of the Contract Act:

S. 31. “Contingent contract” defined. —A “contingent contract’ is a contract to

do or not to do something, if some event, collateral to such contract, does or
does not happen.

Illustration : A contracts to pay B Rs 10,000 If B’s house is burnt. This is a

contingent contract.
Conditional contract

It is a sort of a conditional contract and the condition is of uncertain nature.

A contract which is subject to a certain or an absolute type of condition cannot be

regarded as a contingent contract.

A contract, for example, to pay a sum of money on the expiry of a time or on the
death of a person is not a contingent contract because these events are of a
certain nature.
S. 31 Performance of contingent contracts

The time or the person in question will definitely expire and the money will
become payable.

When the condition is of uncertain nature, then only the contract can be regarded
as truly contingent.

For example, a contract to pay a sum of money on the destruction of a premises

by fire, is a contingent contract, for that contingency may or may not happen.

From this point of view, all contracts of insurance, are contingent contracts.
Ordinarily, therefore, a contingent contract will contemplate a future event.

But a contract may also relate to an event which has already happened and the
only thing uncertain being that the parties do not know which way it happened.

Contingency to be collateral to contract

The section emphasizes that the contingency contemplated by the contract must
be collateral to the contract.

It means that a contract has already arisen or a subsisting contract is there, but
its performance cannot be demanded unless the contemplated event happens or
does not happen
Such a contract has to be distinguished from a proposal which does not result in a
contract unless the condition is first fulfilled.

For example, an offer to pay a sum of money on the discovery of a missing dog is
not a contract at all.

It becomes a contract only when the dog is searched out and then it is no more
contingent.

On the other hand, a contract to pay a sum of money on the loss of a ship is a
contingent contract. The contract is already there and is not to arise on loss, but
the performance can be demanded only on the loss of the ship.
A contract to pay a sum of money in return for some work or labour is also not
contingent, no contract exists and no wages can be demanded without performing
the work first.

In an agreement for sale of land, the condition was that the sale deed would be
executed after the seller obtained permission for use of the land as village land. It
was held that the contract was not contingent.

The agreement matured into a binding contract once permission was obtained. It
was specifically enforceable.

The suit filed within three years after obtaining permission was not time barred.
A contract to buy land which is under dispute made with a party to the dispute and
to become operative if he wins the case, is a contingent contract, its performance
being wholly dependent upon the result of the litigation.

A contingent contract failed because permission was required (environmental

Permission) from the authority concerned but was not granted.

The necessity of such clearance was clearly anticipated in the contract as a

prerequisite to its performance.
The Supreme Court held that consequent restoration of the parties to the position
in which they were before the contract was proper.

The court distinguished such failure from impossibility of performance.

The failure of a contingent contract is due to non-happening of ay anticipated

event.

Whereas impossibility is due to happening of an un anticipated event.

A contract for sale of property was subject to the condition that it would be
approved by the seller’s labour. No such approval became available. The contract
failed. Earnest money directed to be refunded with interest
Contingency to be condition precedent

Generally, the condition which is collateral to the performance of a contract is a

condition precedent, i.e. it has to be satisfied first and then performance can be
demanded.

This has to be distinguished from condition precedent which relates to the

formation of a contract itself.

In such a case, the acceptance is subject to the fulfillment of a condition

prescribed in the offer.
Thus, if a letter of intent issued in favour of a promisee requires him to deposit a
security amount or furnish a bank guarantee in order to accept the offer, non-
fulfillment of the said condition would mean that there is no concluded contract
between the parties.

This would fall under Section 7 which requires the acceptance to be absolute and
unqualified.

Condition precedent in the context of a contingent contract means that though

there is a concluded contract between the parties but the performance cannot be
demanded till the said condition is fulfilled.
Contingency depending upon will of a person

A contract will be no less contingent where the happening or non-hapening of the

contingency depends upon the will of a party.

A contract the performance of which depends upon the promisee’s marriage is a

contingent contract, though his marriage is a contingency exclusively within his
control.

A situation of this kind was before the Madras High Court in Secy of state for
India v A.J. Arathoon ILR (1869-70) 5 Mad 173

The case involved supply of timber to a Government Department. The timber was
to be approved by the superintendent of a factory. He did not approve the timber
actually supplied.
The supplier sued the Government for breach of contract contending that the
timber corresponded with its description in the contract and, therefore, it should
have been approved.

There are two possible approaches to the solution of a problem of this kind.

One is to regard the contract as absolute subject only to approval, in which case
the court should be able to see whether the goods answered their description in
the contract and the rejection being arbitrary, it should be set aside.

An argument in the support of this approach is that if goods can be rejected

arbitrarily at one’s own pleasure and sweet-will, then it can as well be said that
there is no contract at all.
The so-called contract would reduce itself to this that the Government would buy
if the Superintendent so likes. This can hardly be described as a contract.

Hence, to give some meaning to the contract, it would be necessary to hold that
approval should not be arbitrarily refused.

The second possible approach is to regard the contract as contingent. The fact of
approval being collateral to the performance of the contract, its performance could
not be demanded till such approval.
The trial court adopted the first approach.

It felt that the Superintendent being himself a party to the contract, his decision
could be biased and, therefore, his decision should not be final.

But the Madras High Court rejected this approach and followed the approach of
regarding the contract as contingent. The contingency was not fulfilled and hence
there was no question of any action for breach.
S. 32. Enforcement of contracts contingent on an event happening

Contingent contracts to do or not to do anything if an uncertain future event

happens, cannot be enforced by law unless and until that event has
happened. If the event becomes impossible, such contracts become void.

Illustrations

(a) A makes a contract with B to buy B’s horse if A survives C. This contract
cannot be enforced by law unless and until C dies in A’s lifetime.
(b) A makes a contract with B to sell a horse to B at a specified price, if C, to
whom the horse has been offered, refuses to buy him.

The contract cannot be enforced by law unless and until C refuses to buy the
horse.

( c) A contracts to pay B a sum of money when B marries C. C dies without being

married to B. The contract becomes void.
When performance depends upon non-happening of an event [S. 33]

S. 33. Enforcement of contracts contingent on an event not happening

Contingent contracts to do or not to do anything if an uncertain future event does

not happen, can be enforced when the happening of that event becomes
impossible, and not before.

Illustration
A agrees to pay B a sum of money if a certain ship does not return. The ship is
sunk. The contract can be enforced when the ship sinks.
Where the performance of a contract depends upon the non-happening of an
event, naturally the parties have to wait till the happening of that event becomes
impossible.

When such circumstances come to pass that show that the event can no more
happen, then only the performance of the contract can be demanded.

The illustration appended to that section makes the sense of the section clear. An
agreement to sell land provided that the earnest money would be returned in case
the land is notified for acquisition. Unknown to the parties, the land was already
under notification. The contract became impossible of performance and,
therefore, void on declaration under Section 6 of the Land Acquisition Act.
Events linked with human conduct [S. 34]

S.34. When event on which contract is contingent to be deemed impossible,

if it is the future conduct of a living person.

If the future event on which a contract is contingent is the way in which a person
will act at an unspecified time, the event shall be considered to become
impossible when such person does anything which renders it impossible that he
should so act within any definite time, or otherwise than under further
contingencies.
Illustration
A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B
to C must now be considered impossible, although it is possible that D may die,
and that C may afterwards marry B.

when the event for which the parties are waiting is linked with the future conduct
of a person, that is to say, where the contract is enforceable if a certain person is
to act in a certain way, the event shall be considered to have become impossible
if that person does something which makes it impossible, that he should act in
that way in any definite time or without further contingencies being fulfilled.
For example, in Frost v Knight the defendant promised to marry the plaintiff on
the death of his father.

While the father, was still alive, he married another woman.

It was held that it had become impossible that he should marry the plaintiff and
she was entitled to sue him for the breach of the contract.

Similarly, where a person promised to sell certain land to the plaintiff within a
certain time, but sold to another within that time, it was held that the performance
had become impossible or was possible only upon the further contingency of the
defendant buying back the land in order to perform his contract with the plaintiff.
S. 35. When contracts become void, which are contingent on happening of
specified event within fixed time.

Contingent contracts to do or not to do anything if a specified uncertain event

happens within a fixed time, become void if, at the expiration of the time fixed,
such event has not happened, or if, before the time fixed, such event becomes
impossible.

When contracts may be enforced, which are contingent on specified event

not happening within fixed time.

Contingent contracts to do or not to do anything, if a specified uncertain event

does not happen within a fixed time, may be enforced by law when
the time fixed has expired and such event has not happened, or, before the time
fixed has expired, if it becomes certain that such event will not happen.

Ilustrations
(a) A promises to pay B a sum of money if a certain ship returns within a year. The
contract may be enforced if the ship returns within the year, and becomes void if
the ship burnt within the year.

(b) A promises to pay B a sum of money if a certain ship does not return within a
year. The contract may be enforced if the ship does not return within the year, or
is burnt within the year.
S.36. Agreements contingent on impossible events, void

Contingent agreements to do or not to do anything, if an impossible event

happens, are void, whether the impossibility of the event is known or not to the
parties to the agreement at the time when it is made.

Illustrations

(a) A agrees to pay 8 1000 rupees if two straight lines should enclose a space.
The agreement is void.

(b) A agrees to pay B 1000 rupees if B will marry A’s daughter C. C was dead at
the time of the agreement. The agreement is void.