Discharge of Contract

Discharge of contract means termination of the contractual relationship between

the parties. When the rights and obligations arising out of a contract are
extinguished, the contract is said to be discharged. A contract may be discharged
either by the acts of the parties or the operation of law. Act of parties may take
different forms like performance, agreement, breach, etc. while operation of law
includes death, insolvency, etc.
A contract may be discharged in any of the following ways:
1. By performance,
2. By death,
3. By Lapse of time,
4. By Breach of Contract,
5. By Impossibility,
6. By agreement or consent, and
7. By operation of law.
1. Discharge by Performance:
This is most pleasant end of a contract when a contract is duly performed by both
the parties and nothing more remains to be done. But if only one party performs
his promise, he aloes is discharged and the guilty party may be taken to the task
for breach of contract. The performance may be, either actual or attempted i.e.
tender.
Actual performance must be complete, precise and according to the terms of the
agreement. Most of the contracts are performed in this manner.

Where a promisor has made an offer of performance (tender), and the offer has
not been accepted, the promisor is not responsible for non-performance, nor
does he thereby lose his rights under the contract. If there are several joint
promisors, the offer of performance to any one of them shall be sufficient.
Performance shall be given by the promisor himself, in contracts requiring use of
personal skill, e.g. painting, dancing or promise to marry, etc. In such a case death
of the promisor puts an end to the contract. Unless a contrary intention appears
from the contract, a promise can be enforced against and only by the legal
representatives of the parties. Ordinarily, parties must perform their obligations
at the stipulated time. But if the time is of the essence of the contract, then a
failure to perform at the time specified, renders the contract voidable at the
option of the opposite parties.
2. Discharge by Death:
Contracts of a personal nature come to an end by the death of the promisor. In
other cases the rights and liabilities pass on to the legal representatives of the
deceased. But they are liable to the extent of the property inherited by them.
3. Lapse of Time:
The limitation act provides that a contract should be performed within a specified
period i.e. period of limitation. If the contract is not performed, and if no legal
action is taken by the promisee within the period of limitation, he is deprived of
his remedy at law. In other words, the contract in such a case is terminated. For
example, for the price of goods sold and delivered, where no fixed period of
credit is agreed upon, the payment should be made or a suit instituted to recover
it within 3 years from the date of delivery of the goods. If the payment is not
made and the creditor does not file a suit against the buyer for the recovery of
the price within the period of 3 years, the debt becomes time-barred and
irrecoverable.
4. Breach of Contract:
Breach of contract means refusal of performance by a party. Where a party to a
contract has refused to perform, or disabled himself from performing his promise
in its entirety, the other party or aggrieved party may put an end to the contract
unless he has waived his right expressly or impliedly. For instance, X, a singer

enters into a contract with Y to sing at his theatre every night during next month.
Y agrees to pay him Rs. 250 for each night. On the 10th night, X willfully absents
herself from the theatre. Y can put at an end to the contract.
Breach of contract may be of two kinds;
(1) Anticipatory breach; and
(2) Actual Breach.
'Actual Breach' occurs when a party fails to perform his obligation upon the date
fixed for performance by the contract, as for example, where on the appointed
day, the seller does not deliver the goods or the buyer refuses to accept the
delivery. It is to be noted that actual breach of contract due to non performance
can only arise when the time for performance has arrived. Actual breach entitled
the party not in default to elect to treat the contract as discharged and to sue the
party at fault for damages for breach of contract.
Anticipatory breach of Contract:
Anticipatory breach of contract takes place before the date of actual
performance. The promisor may either inform the promisee that he will not
perform the contract or may do an act which is inconsistent with the contract or
renders the performance impossible. For example, A agrees to employ B as a
clerk, the service to commence from 2nd February, 1989. On 27th January, 1989,
he informs B that his services will not be required.
This is an 'anticipatory breach of contract' by expressing repudiation by A.
Similarly, A promises to marry B on 'Kartiki Purnima 1989' but before this date, A
marries C. Here A's voluntary act has made the performance of his obligation
towards B impossible, and therefore 'anticipatory breach by impossibility" is
committed by A.
Section 39 deals with anticipatory breach of contract. Accordingly, "when a party
to a contract has refused to perform or disabled himself from performing his
promise in its entirety, the promisee may put an end to the contract, unless he
has given by words or conduct, his acquiescence in its continuance". But if the

promisee acquiesces in the continuance, by conduct or words of mouth or

condones breach of contract or waives his rights, then the contract continues.
Consequences of Anticipatory Breach :
When anticipatory breach takes place, the aggrieved party can take the following
steps:
(i) He may either treat the contract as rescinded or sue the other party for
damages for breach of contract immediately without waiting until the due date of
performance i.e. he can file a suit for damages or specific performance or
injunction, etc.
Huckster vs De La Tour. In that case, the defendant agreed to engage the plaintiff
as his attendant on a continental tour from June 1st, for 3 months at a salary of
$10 per month. The defendant then changed his mind and wrote to the plaintiff
before that date, that he would not require his services. It was held that the
plaintiff can put an end to the contract even before June 1st, and bring a suit for
damages. He was not bound to wait till the date of performance.
Forst vs Knight. In that case, K promised to marry F after the death of his father.
When the father was still living, K announced his intention of not fulfilling the
promise on his father's death and broke all the engagements. F without waiting
for the father's death at once brought an action against the breach of a contract.
It was held that F could claim damages.
(ii) He may treat the contract as still operative and subsisting and wait for the
time of performance, when the contract is to be executed, and then hold the
other party liable for the consequences of non-performance.
If this course is adopted, the contract remains alive upto the due date. The
promisor may in such a case change his mind and perform the contract. But if in
the intervening period, any supervening impossibility happens which discharges
the contract legally, the repudiating party can take advantage of such eventuality
and the aggrieved party loses his right to sue for damages.
Avery vs. Bowden. In that case, B chartered A's ship and agreed to load it with a
cargo at Odessa within 45 days. When the ship reached Odessa, B was unable to
supply the cargo. A did not accept the refusal and continued to demand the

cargo. Before the expiry of 45 days, the Crimean War broke out rendering the
performance of the contract impossible. Held, the contract was discharged and A
could not sue for damages.
5. Impossibility of Performance:
A contract must be capable of being performed. Section 56 provides "agreement
to do an act impossible in itself is void". This rule is based on two principles:
1. Lex non cogit ad impossibilia i.e. Law does not recognize the impossible.
2. Impossibilia nulla obligation east i.e. An impossible act does not create any
obligation.
Impossibility discharges the parties to a contract. Even if the act becomes
impossible after formation of contract, the contract is rendered void. Impossibility
falls in the following two categories:
1. Initial Impossibility:
Initial impossibility means impossibility at the time of formation of the contract. It
may be known or unknown to the parties. If impossibility is known to the parties,
the agreement is void ab initio. But where the impossibility is known to the
parties, the contract would become void because of mutual mistake of fact
whenever such impossibility is discovered.
2. Subsequent Impossibility:
Sometimes a contract is capable of being performed when entered into, but some
subsequent event renders the performance impossible. In such a case also, the
contract become void. The subsequent impossibility may arise (i) by some event
beyond the control of the parties, or (ii) by some act of the promisor or promisee.
Doctrine of Supervening Impossibility :
In certain circumstances, subsequent impossibility makes the contract void.
Supervening impossibility is an excuse for the non-performance of a contract in
such cases. These cases are as follows:
1. Destruction of subject matter of the contract:

Where the subject -matter of the contract is destroyed before the contract is
performed the contract is discharged.
Howell vs Coupland. In that case, C contracted to deliver a specific crop of
potatoes. The crop was destroyed by a pest through no default of the party. It
was held that the contract was discharged.
V.L. Narasu vs. P.V.S. Iyer. In this case, a contract was entered into between a
purchaser and a theatre owner to show a picture at the latter's theatre for a
particular period and share the profits. The theatre subsequently had to be
demolished on account of the authorities declaring it to be defective and unsafe.
The theatre owner had no knowledge of the defective and unsafe condition of the
building, and on account of demolition, the show was interrupted. It was held
that the continued existence of the theatre was a fundamental basis of the
contract and there was a frustration of that fundamental character. As such, the
contract was held to be discharged.
Taylor vs. Caldwell. A music hall was agreed to be let out for a series of concerts
on certain days. The hall was destroyed by fire before the date of the first
concert. The plaintiff sued the defendant for damages for the breach of contract.
It was held that the contract had become void and the defendant was not liable.
Teatem Ltd. vs. Gamboa. It was decided that, if a factory premises on which
machinery is to be installed is destroyed by fire, or a ship under a charter party is
seized by a foreign government, the contract is discharged.
2. Death or personal incapacity of the parties:
Where the performance of the contract depends on the personal skill or
qualification of a party, the contract is discharged on the illness or incapacity or
death of that party. The man's life is an implied condition of the contract.
Robinson vs. Davison. In this case, an artist undertook to perform at a concert for
a certain price. Before she could do so, she was taken seriously ill. It was held that
she was discharged due to illness.
Similarly, in a case, two parties contracted to marry each other. Before the time
fixed for marriage, a party became mad. The contract becomes void in such case
due to the personal incapacity of the parties.

3. Change of law:
A subsequent change in law may render the contract illegal and in such cases, the
contract is deemed discharged. The law may actually forbid the doing of some act
undertaken in the contract, or it may take from the control of the promisor
something in respect of which he has contracted to act or not to act in a certain
way.
Nor Bux vs. Kalyan, A.I.R. A agreed to transport goods of B from place X toY.
Subsequently, the trucks of A were requisitioned by the Government under a
statutory power. Here the contract was discharged due to change in law.
Shipton Anderson & Co. vs. Reschipto. A specific parcel of wheat was sold in a
warehouse. Before the delivery was given, the wheat was requisitioned by the
Government under statutory power.
4. Declaration of War:
Contracts entered into during war with an alien enemy are void abinitio. When
peace returns, they remain still void and of no effect. But contracts entered into
before the declaration of war, remain suspended during the continuance of war,
if it is for a short period and may be revived and enforced at the end of the war.
But if war continues for a sufficiently longer period of time and the party would
be discharged from performance on the ground of impossibility.
5. Non-existence or non-occurrence of particular state of things:
If a contract is entered into on the basis of the continued existence of a certain
state of things, the contract is discharged, if the state of things changes or ceases
to exist.
Krell vs. Henry. Henry hired a room from Krell for two days to witness the
coronation procession of King Edward VII. He knew the object of the contract, the
procession was cancelled. It was held that Henry was excused from paying rent
for the room, as the existence of the procession was the basis of the contract and
its abandonment discharged the contract.
Cases not Covered by Supervening Impossibility:

It may be stated that impossibility to perform arising subsequently to the

agreement will not, as a rule, relieve the promisor from performing his part in all
cases, because "where there is a positive contract to do a thing, not in itself
unlawful, the promisor must perform it or pay damages for not doing it, although
in consequence of unforeseen accidents, the performance of his promise has
become unexpectedly burdensome or even impossible". Thus, in order to excuse
a person from the performance of a contract, there must be physical or legal
impossibility. In the following cases a contract is not discharged on the ground of
supervening impossibility.
1. Difficulty of Performance:
A contract is not discharged merely because its performance has become difficult,
or more expensive or less profitable than stipulated at the time of its formation.
As a rule, difficulty is no excuse from performance.
Blackburn Bobbins Co. Ltd. vs. Allen & Sons. In this case, A sold a certain quantity
of Finland timber to B to be delivered between June and September, 1914. No
deliveries were made before August when war broke out and transport was
disorganized so that A could not bring any timber from Finland. Held, impossibility
of getting timber from Finland could not excuse performance of the contract as B
was not concerned with the way in which A was going to get timber from Finland.
2. Commercial Impossibility:
Again, a distinction has to be made between absolute impossibility and
commercial impossibility. Commercial impossibility means that the performance
of the . contract is not impossible but it has only become costlier in terms of
money or labor. A contract is not discharged merely because expectation of
higher profits is not realized, or the necessary raw material is not available at
normal rates because of the outbreak of war, or there is sudden depreciation of
currency.
Karl Etlinger vs. Chagandas & Co. promised to send certain goods from Bombay to
Antwerp in September. Before the goods were sent, war broke out and there was
a sharp increase in shipping rates. Held, the contract was not discharged.
Sachindra vs. Gopal. A contracted to supply certain goods to B. Due to the
outbreak of war, the market price of the goods suddenly shot up. Held, A is not

discharged from performance of the contract merely because the outbreak of the
war has rendered the contract unprofitable.
Davis Contractors Ltd. vs. Fareham. In that case there was a contract to build 78
houses for a council for a fixed price of Rs. 94421 and to be completed with 8
months. Due to labour strikes and shortage of certain materials, it took 22 months
to complete instead of 8 months and at a cost of Rs. 115000. The contractor
contended that the contract has been frustrated and that they were entitled to a
claim on a quantum merit for the cost actually incurred by them. It was held that
the performance of the contract was more onerous but did not discharge the
agreement.
3. Failure of third party relied upon by the promisor:
Where a contract could not be performed because of the default by a third party
on whose work the promisor relied, it is not discharged.
Harnadrai Fulchand vs. Pragdas. A, a wholesaler, entered into a contract with B
for the sale of a certain types of cloth to be produced by C, a manufacturer of that
cloth. C did not manufacture the cloth. Held, A was liable to B for damage.
Allopi Parshad vs Union of India. In that case, A was acting as the agent of the
Government of India for purchasing edible oils for the use of Army personnel. The
rates were fixed by the Government of India for the supply of the edible oils.
During the period of performance of the contract, Second World War broke out,
and there was abnormal rise in price. A demanded revision of supply rates but
received no response. He kept that A was entitled to claim only the supply rates
contracted for and nothing more than that.
4. Strikes, Lock-outs, Riots, Civil disturbances etc:
A strike by the workmen or a lockout by the employer also does not excuse
performance because the former is manageable (as labour is available otherwise)
and the latter is self induced. Where the impossibility is not absolute or where it is
due to the default of the promisor himself, section 56 would not apply. As such,
these events also do not discharge a contract.
Hari Laxman vs. Secretary of State for India. The lessor of certain salt pans, failed
to repair them according to the terms of the contract, on the ground of a strike of

the workmen. It was held that a strike by the workmen was not sufficient reason
to excuse performance of a term of the contract.
Jacobs vs. Credit Lyonnais. In that case, a contract was entered into between two
London merchants for the sale of certain goods which are to be imported from
Algeria. Due to riots and civil disturbances in Algeria, the goods could not be
imported. Held, this was no excuse for non-performance of a term of the
contract.
Budgett vs. Binnington. The unloading of a ship was delayed beyond the date
agreed with the ship-owners owing to a strike by dock workers. It was held, that
the ship-owners were entitled to damages, the impossibility of performance being
no excuse.
5. Partial impossibility:
When a contract is entered into for several objects, the failure of one of them
does not discharge the contract.
H.B. Steam Boat Co. vs. Hutton. In that case, the Steam Boat Co. agreed to let a
boat to H to view, (i) the naval review at the coordination of Kind Edward VII, and
(ii) to cruise round the fleet. Due to the illness of king, the Naval review was
cancelled, but the fleet was assembled and the boat could have been used to
cuisse round the fleet. Held, the contract was not terminated as the naval review
was not the sole basis of the contract.