DISCHARGE OF A CONTRACT

DISCHARGE OF CONTRACT

When a contract is terminated, it is said to be discharged and the contracting parties are free from further obligations arising from it.1Meaning Discharge of contract means termination of the contractual relationship between the parties.A contract is said to be discharged when it ceases to operate i.e when the rights and the obligation created by it come to an end.When a contract is terminated, it is said to be discharged and the contracting parties are free from further obligations arising from it.

How to discharge a contract?1. DISCHARGE BY PERFORMANCEDischarge by performance take place when the parties to the contract fulfill their obligation arising under the contract within the time and the manner prescribed. In such case, the parties are discharged and the contract comes to an end.Actual performance: when both the parties perform their promise, the contract is discharged.Attempted performance: tender is not actual performance but is only to perform the obligation under the contract. Where the promisor offer to perform his obligation but the promisee refuse to accept the performace. 2. DISCHARGE BY AGREEMENT OR CONSENTA contract is the result of an agreement between the parties. As it is the agreement which binds them so by their further agreement or consent the contact may be terminated. The discharge by agreement may be expressed or implied.

Discharge by implied consent:By Novation sec 62By Rescission sec 62By Alteration sec 62By Remission sec 63By WaiverBy Merger (a). Novation: Novation takes place when:A new contract is substituted for an existing one between the same parties. orA contract between two parties is rescinded in consideration of a new contract being entered in to on the same terms between one of the parties and a third party. Novation should take place before expiry of time of the performance of the original contract. Example: A owes money to B under a contract. It is agreed between A, B and C that B shall henceforth accept C as his debtor, insteadd of A.Example: A owes B Rs. 10000. he enters into an agreement with B and gives B a mortgage of his (As) estate for Rs 5000.s

(b). Recession: Recession of a contract takes place when all or some of the terms of the contract are cancelled. It may occur by-(i). By mutual consent of the parties or(ii). When one party fails in the performance of his obligation. In such a case other party may rescind the contract without prejudice to his right to claim compensation for the breach of contract. Example: A and B enter into a contract that A shall deliver certain goods to B by the 15th of this month and that B shall pay the price on the first of the next month. A does not supply the goods. B may rescind the contract and need not pay the price.

(c). Alteration: Alteration of a contract may take place when one or more of the terms of the contract is/are altered by the mutual consent of parties to the contract. In such a case, old contract is changed.(d). Remission: Remission means acceptance of a lesser fulfillment of promise made e.g. acceptance of a lesser sum than what is contracted for in discharge of the whole of the debt. Example: A owes B rs 5000. A pays to B and B accepts 2000 in satisfaction of the whole debt at the time and place at which Rs 5000 were payable. The whole debt is discharged.

(e). Waiver: Waiver takes place when parties to a contract agree that they shall not be bound by the contract. This amounts mutual abandonment of the rights by the parties to the contract. Consideration is not necessary for waiver.(f). Merger: Merger takes place when an inferior right accruing to a party under a contract merges into superior right accruing to the party under the same or some other contract.Example: P holds a property under a lease. He later buys the property. His rights as a lessee merge into his rights as an owner.

3. Discharge by impossibility of performance.If an agreement contains an undertaking to perform an impossibility, it is void ab initio.This rule is based on following legal principles:1.The law does not recognize what is impossible. (lexicon cogit ad impossibilia)2. What is impossible does not create an obligation. (impossibilium nulla obligato est)Impossibility of performance may fall into either of the following categories.

Impossibility existing at the time of agreement:This is known as pre-contractual or initial impossibility. This can be further classified in to:Known to parties.This is also known as absolute impossibility. In the case of absolute impossibility, the agreement is void ab initio. Example: when A agrees with B to discover treasure by magic, or undertakes to put life into the dead wife of B

ii. Unknown to parties.If at the time of making the contract, both the parties are ignorant of the impossibility, the contract is void on the ground of mutual mistake. If, however, the promisor alone knows of the impossibility of performance at the time of making contract, he shall have to compensate the promisee for any loss which such promisee sustains through non-performance of the promise. Example: A sold to B certain goods supposed to be on vogaye. The goods had ceased to exist due to the perils of the sea. Held, the contract was void. 12

2. Impossibility arising subsequent to the formation of the contract: Impossibility which arises subsequent to the formation of the contract is called post-contractual or supervening impossibility. In such a case, the contract becomes void when the act becomes impossible or unlawful.This impossibility is caused by the circumstances beyond the control of the parties, the parties are discharged from further performance of the obligation under the contract.A Contract is discharged by supervening impossibility in the following cases: 13

Destruction of a subject-matter of contract.Example: A contracted to sell a specified quantity of potatoes to be grown on his farms. The crop largely failed. Held, the contract was discharged.Non-existence or non-occurrence of a particular state of thing.Example: A and B contract to marry each other. Before the time fixed for the marriage, A died. The contract becomes void.Death or incapacity for personal service.Example: An artist undertook to perform at a concert for a certain price. Before she could do so, she was taken seriously ill. Held, she was discharged due to illness.Change of law or stepping in of a person with statutory authority.Example: D enters into a contract with P on 1st March for the supply of certain imported goods in the month of September of the same year. In June by an Act of parliament, the import of such goods is banned. The contract is discharged.Outbreak of war.

Impossibility of performance- not an excuse:Impossibility of performance is, as a rule, not an excuse for non-performance.Ordinarily when a person undertakes to do something, he must do it unless performance becomes absolutely impossible due to any of the circumstances already discussed.In the following cases, a contract is not discharged on the ground of supervening impossibility.

Difficulty of performance.Example: A sold a certain quantity of Finland timber to B to be supplied between July and September. Before any timber was supplied, war broke out in the month of August and transport was disorganise.Commercial impossibility.Impossiblility due to failure of a third person.Example: A, a wholesaler, entered into a contract with B for the sale of a certain type of cloth to be produced by C, a manufacturer of that cloth. C did not manufacture that cloth. Held, A was liable to B for damages.Strikes, lock-outs and civil disturbance.Failure of one of the objects.

4. Discharge by Lapse of TimeThe limitation Act, 1963 lays down that a contract should be performed within a specified period, called period of limitation. If it is not performed, and if no action is taken by the promisee within the period of limitation, he is deprived of his remedy at law.

5. Discharge by operation of lawA contract may be discharged independently of the wishes of the parties i.e. operation of law. This includes discharge:(a). By death.(b). By merger.(c). By insolvency.(d). By unauthorized alteration of the terms of a written agreement.(e). By rights and liabilities becoming vested in the same person.

6. Discharge by breach of contractBreach of contract means breaking of the obligation which a contract imposes. It occurs when a party to a contract without lawful excuse does not fulfill his contractual obligation or by his own act makes it impossible that he should perform his obligation under it. It confers right of action or demages on the injured party.

Breach of contract may be-Actual breach of contract.Anticipatory or constructive breach of contract.6.1 Actual Breach of contract:It may take place:At the time when performance is due.Example: A agrees to deliver to B 5 bags of wheat on 1st January. He does not deliver the wheat on that day. There is a breach of contract.During the performance of the contract.Example: C contracted with a railway company to supply it 3000 tons of railway chairs at a certain price, to be delivered in instalments. After 1,787 tons had been supplied, the railway company asked C to deliver no more. Held, C could bring an action for breach of contract.

This refusal to perform may be by-(a). Express repudiation (by word or act).(b). Implied repudiation ( impossibility created by the act of a party to the contract).

6.2: Anticipatory breach of contract: It occurs when a party to an executory contract declares his intention of not performing contract before the performance is due. He may do so: By expressly renouncing his obligation under the contract.Example: A undertakes to supply certain goods to B on 1st January. Before this date, he informs B that he is not going to supply the goods. This is anticipatory breach of contract by express repudiation.By doing some act so that the performance of his promise becomes impossible. Example: 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.