Discharge of Contract

Amit Mishra Lecturer Amity Law School amy.m1983@yahoo.in

Introduction
Meaning Several Modes of Discharge of Contract 1. By Performance 2. By Lapse of Time 3. By Operation of Law 4. By Mutual Agreement 5. By Breach of Contract 6. By Impossibility of Performance or Supervening Impossibility or Doctrine of Frustration or Frustration of Contract

Meaning of Discharge of Contract

Termination of contractual relationship between the parties. A contract is said to be discharged when the rights and obligations created by it come to an end. There may be six ways of discharging of contract:-

1. Discharge by Performance
Means completion of that which is required by the contract. It is the usual mode of its discharge. It may be:
1. Actual Performance 2. Attempted Performance or Tender

Actual and Attempted Performance

When both the parties perform or fulfil their respective obligations in accordance with the terms of the contract, the contract is discharged. Most of the contracts are discharged by performance in this manner. Tender is not an actual performance but is only an offer to perform the obligation under the contract and the same is not accepted by the promisee. When a promisor makes a valid tender to the promisee and the later doesnt accept, the promisor is discharged. Ex. A supplied the goods but Bs warehouse was locked.

Ex: A has supplied the goods and B has made the payment.

2. Discharge by Lapse of Time

If a party fails to perform within the time specified, then the contract is discharged by non-performance. The Limitation Act, 1963 lays down that a contract should be performed within a specified period (3 years) called period of limitation.

If it is not performed or if no action is taken by the promisee within the period of limitation, he is deprived of his remedy at law.
Ex: When the goods are sold on credit, the price should be paid within 3 years of the expiry of period of credit. If the price is not paid and creditor doesnt file a suit against the debtor for the recovery of price within 3 years, the debt becomes time-barred and hence irrevocable and debtor becomes discharge from the contract.

3.Discharge By Operation of Law

A contract may be discharged on the death and insolvency of the promisor. 1. Death- In contracts involving personal skill or ability, the contract is terminated on death of the promisor. In other contracts, the rights and liabilities of a deceased person pass on to the legal representatives of the deceased person. 2. Insolvent- when a person is adjudged insolvent, he is discharged from all liabilities.

4. Discharge by Mutual Agreement

There are 4 forms of it u/s 62 and 63:1. Novation (S. 62)- means subsititution of a new contract in place of the original contract. The new contract may be: a) between the same parties b) between the different parties. EX: Debtor D makes another person Z a new debtor instead of him and creditor C accpets it. Rescission (S. 62)- means cancellation/termination or setting aside of a contract. It means when a contract is broken by one party, the injured party may:a) not required to perform his part of obligation b) claim compensation for any loss caused to him EX: If promisor fails to supply the delvery of the goods to Promisee then Promisee can terminate the contract and claim compensation from the Promisor.

2.

3. Alteration (S.62)- means a change in terms of the contract with mutual consent of the parties. It discharges the original contract and creates a new contract between the parties. However, the parties to a new contract remain the same. Ex: A delivers goods at Noida instead of Delhi as per the change in the contract. 4. Remission (S.63)- means acceptance of a lesser sum than what was contracted for. Ex: A takes B Rs. 20000. later on, A returns B Rs. 15000 in satisfaction of the whole debt. B accepts it and thus A discharges from the contract.

5. Discharge by Breach of Contract

Means breaking of the obligations which a contract imposes or, Failure of a party to perform his part of contract is called as breach. Breach of a contract may be:
1. Actual Breach 2. Anticipatory Breach or Constructive Breach

Actual and Anticipatory Breach

When the promisor doesnt declare his intention of not performing the contract is called actual breach. When the promisor declares his intention of not performing the contract even before the time stipulated for performance of contract is due, is called anticipatory breach. Ex: A intimates B in advance that he cant deliver goods at his house.

Ex: A does not deliver goods at Bs house.

6. Discharge by Impossibility by Performance

If, no Impossibility existed at the time of formation of the contract but, impossibility arises subsequent to the formation of the contract and the impossibility is of such a nature that it makes the performance of the contract impossible or illegal. then, it is called as Supervening impossibility (SI). In UK, it is known as Frustration of Contract(FOC) or Doctrine of Frustration.

Reasons for SI or Frustration of Contract

1. 2. 3.

4.

5.

Change in Law- The government made a law that no one can employ the children below the age of 14 years in the factories, restaurant or dhabas and therefore employing the children after the law is unlawful. Change in Circumstances- A promises to marry B but before that A goes mad. Destruction of Subject-matter- when the subject matter is destroyed without any fault of the parties to the contract, the contract is discharged. Death or Incapacity of Promisor- when the promisor dies in between the contract, then also itll become void and impossible to fulfill the contract. Outbreak of War- A contract with an alien enemy during war is unlawful and therefore impossible of performance.

What is not Supervening Impossibility

1. Self-induced impossibility- A contract cant be discharged by the mere fact that it has become more difficult to perform. 2. Default by third party- A contract cant be discharged on the fact that it couldnt performed the contract due to default made by the third party. 3. Commercial Impossibility- A contract cant be discharged on the grounds of rise or fall in prices, depreciation or appreciation of currency, availability of transport at higher goods etc. 4. Strikes, Riots or Civil Disturbances- A contract cant be discharged on the grounds of strikes by the workers, outbreak of riots, heavy rains etc.

Effects of SI or Frustration of Contract

When the Performance of Contract becomes impossible, the contract becomes void and all parties will discharge from the contract. When the Performance becomes impossible, the contract becomes void, any person who has received any benefit under such contract is bound to restore it or to make compensation to the person from whom he received it.

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