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.

Meaning

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?
PERFORMANCE

1. DISCHARGE BY
PERFORMANCE

Discharge 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
CONSENT

A 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:

1. By Novation sec 62
2. By Rescission sec 62
3. By Alteration sec 62
4. By Remission
sec 63
5. By Waiver
6. By Merger

(a). Novation: Novation takes place when:

A new contract is substituted for an existing one between
the same parties. or
A contract between two parties is rescinded in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 existing at the time of

agreement:
This is known as pre-contractual or initial impossibility.
This can be further classified in to:
i.
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
1.

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

1.

2.

3.

4.

5.

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.

1.

2.
3.

4.
5.

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
Time

The 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
law
A 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
contract

Breach 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.


1.
2.

1.

2.

Breach of contract may beActual 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 1 st
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:
1. By expressly renouncing his obligation under the
contract.

Example: A undertakes to supply certain goods to B on 1 st

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.
2. 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.