DISCHARGE OF CONTRACT

DISCHARGE OF CONTRACT

• Meaning putting an end to the contract or termination of the contract.

• That the parties are no more liable under the contract.

• Termination of the contractual relationship between parties is called the discharge of contracts.

• When the rights & obligations created by it comes to an end.

TYPES / VARIOUS MODES OF DISCHARGE

1. DISCHARGE BY PERFORMANCE

2. DISCHARGE BY AGREEMENT OR CONSENT

3. DISCHARGE BY IMPOSSIBILITY

4. DISCHARGE BY LAPSE OF TIME

5. DISCHARGE BY OPERATION OF LAW

6. DISCHARGE BY BREACH OF CONTRACT.

I. DISCHARGE BY PERFORMANCE

• Discharge of performance takes place when the parties to the contract fulfill their obligations arising under the contract within the time and in the manner prescribed.

• Two forms 1. Actual performance--- when both the parties

perform his work.

2. Attempted performance/ tender/offer to perform

II. DISCHARGE BY AGREEMENT OR CONSENT

• Mutual consent. By Agreement or Consent

By express consent By implied consent 6 types

1.Novation2. Rescission3. Alteration4. Remission5. Waiver 6. Merger

chart

1. NOVATION

• Substitution of new contract for existing one.

• Two types

(a). Change in parties

(b). Without change in parties

2. RESCISSION

• Means cancellation of the contract.

3.ALTERATION• Means a change in one or more of the

material terms of the contract.

• Two types

(a). Material Alteration– is one which alters the legal effect of the contract . For e.g change in the amount of money to be paid, rate of interest or the names of the parties.

(b). Immaterial Alteration– it is correcting a clerical errors in figures or the spelling of the name.

NOVATION ALTERATION

• Change in parties

• Old contract is dissolved by new contract

• Two types of contract

• Parties remain same

• No dissolution

• One contract

4.REMISSION

• Is acceptance of lesser amount than what was contracted or lesser fulfillment of the promise made.

5. WAIVER

• Means the abandonment of a right which a person is entitled to

• Means abandoning the rights

• When a party waives his right under the contract, the other party is released of his obligations

A B( to repair a car)

III DISCHARGE BY IMPOSSIBILITY

• If an agreement contains an undertaking to perform an impossibility, it is void ab initio

Rule

1. lex non cognit ad impossibilia i.e the law does not recognise what is impossible

2. impossibilium nulla obligato i.e what is impossible does not create an obligation.

IMPOSSIBILITY

impossibility existing at impossibility arising subsequent

the time of agreement / to the formation of contract/

pre-contractual impossibility Supervening impossibility / a. Known to the parties Post- contractual

impossibility

A B ( to put life into the dead wife)

b. Unknown to the parties

X Y(due to perils)

POST-CONTRACTUAL IMPOSSIBILITY

A. Destruction of subject matter of the contract.

B. Non-existence or non-occurrence of a particular state of things .

C. Death or incapacity of personal skill.

D. Change of law

A. Destruction of subject matter of the contract.

• E.g TAYLOR VS CALDWELL

gave music hall

C T

B. Non-existence or non-occurrence of a particular state of things .

marriage

A B

mad

C. Death or incapacity of personal skill.

e.g. ROBINSON VS DAVISON

to sing at a theater

R D

unable to perform because of illness

D. Change of law

E.g. SHIPTON VS ANDERSON & CO.

wheat lying in godown

A S

Before the delivery godown was sealed by government

Contract is discharged as the delivery of wheat become impossible

IMPOSSIBILITY OF PERFORMANCE --- NOT AN EXCUSE

A. DIFFICULTY OF PERFORMANCE

e.g. Blackburn bobbin co vs Alten & sons

sold finland timber( to be supplied bet July- Sep)

A B

but war broke out in the month of August

B.COMMERCIAL IMPOSSIBILITY

E.G . KARL VS CHAGANDAR & CO

K C

Bombay Antwerp

( before good sent, war broke out so price increased because of that higher profit is not realised)

C. IMPOSSIBILITY DUE TO FAILURE OF A THIRD PERSON

(sell cloth, manufacture by C)

E.G. A B

C did not manufacture

A is liable to B for damages.

D. STRIKES, LOCK-OUTS AND CIVIL DISTURBANCE.

EFFECTS OF SUPERVENING IMPOSSIBILITY

1. WHEN THE PERFORMANCE OF A CONTRACT BECOMES IMPOSSIBLE OR UNLAWFUL SUBSEQUENT TO ITS FORMATION, THE COTRACT BECOMES VOID.

2. WHERE ONE PERSON HAS PROMISED TO DO SOMETHING WHICH HE KNEW, MIGHT HAVE KNOWN, AND WHICH THE PROMISEE DID NOT KNOW TO BE IMPOSSIBLE OR UNLAWFUL, THE PROMISOR MUST MAKE COMPENSATION TO THE PROMISEE FOR ANY LOSS WHICH THE PROMISEE SUSTAINS THOUGH THE NON-PERFORMANCE OF THE PROMISE.

3. WHERE AN AGREEMENT IS DISCOVERED TO BE VOID OR WHEN A CONTRACT BECOMES VOID, ANY PERSON WHO HAS RECEIVED ANY ADVANTAGE UNDER SUCH AGREEMENT OR CONTRACT IS BOUND TO RETORE IT OR TO MAKE COMPENSATION TO THE PERSON FROM WHOM HE RECEIVED IT.

DOCTRINE OF FRUSTRATION

In England the doctrine of frustration is the parallel concept of “Supervening impossibility”

It comes into play “ when the common object of a contract can no longer be achieved or when the contract, after it is made, becomes impossible of performance due to circumstances beyond the control of the parties , the court may declare the contract to be at an end”

IV DISCHARGE BY LAPSE OF TIME

• According to The Limitation Act, 1963– a contract should be performed within a specified period which is called as period of limitation

V. DISCHARGE BY OPERATION OF LAW

A. BY DEATH

B. BY MERGER

C. BY INSOLVENCY

D. BY UNAUTHORISED MATERIAL ALTERATION

Where a party to a contract makes any material alteration in the contract without the consent of the other party.

VI. DISCHARGE BY BREACH OF CONTRACT

• Breach of contract means breaking of obligation• It occurs when a party to the contract does not fulfill

his contractual obligation or by his own act makes it impossible that he should perform his obligation

• Breach of contract means the failure of a party to perform his obligations

• The party who fails to perform his obligations , is said to have committed a breach of contract.

Breach of contract may be

1. Actual breach of contract

2. Anticipatory or Constructive breach of contract

BREACH OF CONTRACT

ACTUAL BOC ANTICIPATORY BOC

At the time when During the performance

the performance of the contract

is due

Express repudiation Implied repudiation

(by word or act) ( impossibility created by the act of a party to the contract)

ANTICIPATORY BREACH OF CONTRACT

Express Repudiation Implied Repudiation

or or

Renunciation Creating some

impossibility

1. ACTUAL BREACH OF CONTRACT

(a). At the time when the performance is dueactual breach of contract occurs at

the time when the performance is due , when one party fails or refuses to perform his obligations under the contract results in breach of contract.

Example

• A agrees to deliver 5 bags of sugar to B on 1st July, but fails to do so on that date, he is said to have committed a breach of contract

b. During the performance of contract

(i) Express Repudiation( by word or act);

when one party fails or refuses to perform the obligation under the contract during the performance of the contract. This type of breach of contract occurs in case of instalment contract.

EXAMPLE

CORT vs AMBERGATE RAILWAY & CO.

C contracted with a railway company to supply 3000 tones of railway chairs at a certain price, to be delivered in instalment. After 1,787 tons had been supplied, the railway company asked C to deliver no more. C could bring an action for breach of contract.

(ii) Implied Repudiation (impossibility created by the act of a party to the contract)

If a party, during the performance, makes by his own act the complete performance of the contract becomes impossible, the effect is as if he has breached the contract, and the other party is discharged from the further performance of the contract.

EXAMPLE

P, a British subject, was engaged by the captain of a warship owned by the Japanese Government to act as a fireman. Subsequently when the Japanese Government declared war with China. P was informed that the performance of the contract would bring him under the penalties of the Foreign Enlistment Act. He consequently left the ship.

2.ANTICIPATORY BREACH OF CONTRACT

(i) EXPRESS REPUDIATION:

Anticipatory breach of contract takes place when one party expresses his inability to perform or renounces his liabilities under the contract expressly, before the performance is due. This is known as express anticipatory breach of contract.

EXAMPLE

A agreed to supply certain goods to B on 1st January. But before this date, A expressly informed B that he would not supply the goods to him. This is anticipatory breach of contract by express refusal to perform it.

ii IMPLIED REPUDIATION

A promisor may, before the time for performance arrives, by doing some act make the performance of his promise impossible. This is known as implied anticipatory breach of contract.

Example( LOVELOCK VS FRANKLYN)

A promised to assign to B, within 7 years from the date of his promise, all his interest in a lease for the sum of $140. Before the end of 7 years he assigned his interest to another person. Held this was anticipatory breach of contract by implied repudiation.

Rights of the promisee in case of anticipatory breach

(i) He can treat the contract as discharged so that he is absolved from the performance of his part of the promise.

(ii) He can immediately take a legal action for breach of contract i.e., file a suit for damages, specific performance or injunction .

Anticipatory breach does not necessarily discharge the contract. It however, discharge the promisee( the aggrieved) if he so chooses, and entitles him to sue for a breach at once.

Measure in Anticipatory Breach of Contract

(i) If the contract is ended at once:

if the promisee elects to end the contract at once, he can sue the promisor for damages. The amount of damages will be measured by the difference between the price prevailing on the date of breach and the contract price.

Measure in Anticipatory Breach of Contract

(ii) If the contract is kept alive till the date of performance of the contract.

If the promisee keeps the contract alive till the date of performance, the measure of damages will be the difference between the price prevailing on the date of the performance and the contract price.