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Discharge of Contract

Discharge of Contract

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Published by dilfarazz

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Published by: dilfarazz on Feb 18, 2010
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When an agreement, which was binding on the parties to it, ceases to bindthem, the contact is said to be discharged. A contract may be discharged inthe following ways:1.By Performance of the contract ;2.By breach of the contract ;3.By impossibility of performance ;4.By Agreement.
1. Discharge by performance
Under a contract each party is bound to perform his part of the obligation.After the parties have made due performance of the contract, their liabilityunder the contract comes to an end. In such a case the contract is said to bedischarged by performance.
2. Discharge by Breach of Contract
When a party having a duty to perform a contract fails to do that, or does anact whereby the performance of the contract by him becomes impossible, or he refuses to perform the contract, there is said to be a breach of contract onhis part. On the breach of contract by one party, the other party is dischargedfrom his obligation to perform his part of the obligation, and he also gets aright to sue the party making the breach of contract for damages for the lossoccasioned to him due to the breach of contract. The breach of contract maybe either actual, i.e., non-performance of the contract on the due date of performance, or anticipatory, i.e., before the due date of performance hascome. For example,
is to supply certain goods to
on 1
January. On 1
does not supply the goods. He has made actual breach of contract.On the other hand, if 
on 1
December that he will not perform
thecontract on 1
January next,
has made anticipatory breach of contract.
Anticipatory breach of contract 
It means the repudiation of a contract by one party to it before the due date of its performance has arrived. Section 39, which contains law relating toanticipatory breach of contract is as follows:
“ 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 tothe contract, unless he has signified, by words or conduct, hisacquiescence in its continuance.”
Page 1 of 17
Anticipatory breach of contract could be made by promisor, either by refusingto perform the contract, or disabling himself from performing the contract in itsentirety, before the due date of performance has arrived. When the refusal toperform the contract in its entirety is not there, it is not to be considered to bea case of anticipatory breach within the meaning of section 39.
West Bengal Financial Corporation Vs. Gluco Series AIR 1973 Cal.
granted a loan to
amounting to Rs. 4,38,000 and also agreed to grant afurther loan of Rs. 1, 62,000 at its discretion, provided that
made therepayment of the loan in accordance with the agreement at the rate of Rs.60,000 every year.
failed to make the repayment as agreed.
insisted that
should grant further loan of Rs. 1,62,000 to him, but
did not grant further loan because
did not make the repayment of loan as agreed.
contention was that
had failed tom perform the contract by not advancingfurther loan, which should be considered to be breach of contract. It was,however, held that
had already advanced some loan, which
hadaccepted, there cannot be said to be a refusal on
part to performance of the contract in its entirety.
was therefore not entitled to put an end to thecontract on the ground of breach of contract on the part of 
.The position is further explained by illustration (b) to section 39, which isunder:
a singer, enters into a contract with
, the manager of a theatre to singat his theatre two nights in every week during the next two months, and
agrees to pay her 100 rupees for each night’s performance. On the sixth night
wilfully absents herself from the theatre.
is at liberty to put an end to thecontract.The above illustration to section 39 may create a misapprehension that in thiscase absenting on one of the nights is only partial refusal to perform thecontract and not failure to perform the contract in its entirety. In
SooltanChund Vs. Schiller (1879)
it was observed that even absence on one nightin this illustration is breach of the contract in its entirety.
Effect of Anticipatory breach of contract
When the promisor has made anticipatory breach of contract, “the promiseemay put an end to the contract, unless he has signified by words or conducthis acquiescence in its continuance.”It means that on the breach of contract by one party, the other party has twoalternatives open to him, viz.,
(i) He may rescind the contract immediately, i.e., he may treat the contract asan end, and may bring an action for the breach of contract without waiting for the appointed date of the performance of the contract,(ii) He may not put an end to the contract but treat it as still subsisting andalive and wait for the performance of the contract on the appointed date.
(i) Election to rescind the contract
When the promisee accepts the repudiation of the contract even before thedue date of performance, and elects to treat the contract at an end, he isdischarged from his obligation to perform the contract, and also gets a right tobring an action for the breach of contract, if he so likes, even before the duedate of performance has arrived.
In Hochester Vs. De La Tour (1853)
the Defendant engaged the plaintiff on12
April, 1852, as a courier to accompany him on the tour of Europe. Thetour was agreed to begin on 1
June, 1852 and the plaintiff was to be paid £10 per month for his services. On 11
May, 1952 the defendant wrote to theplaintiff informing him that he has changed his mind and declined to take theservices of the plaintiff. On 22
May, 1852, the plaintiff brought an actionagainst the defendant for the breach of contract. The defendant contendedthat there could be no breach of contract before 1
June. It was held that aparty to an executory contract may make a breach of contract before theactual date of performance, and the plaintiff, in such a case, is entitled to putan end to the contract and he can bring an action even before the actual dateof performance has arrived. The plaintiff’s action therefore succeeded.
In Frost Vs. Knight (1872)
the defendant promised to marry the plaintiff onthe defendant’s father’s death. While defendant’s father was, still alive, herenounced the contract. The plaintiff did not wait till the defendant’s father’sdeath and immediately sued him, and she was successful in her action.
(ii) election to keep the contract alive
Anticipatory breach of contract by one party does not automatically put an endto the contract. It has already been noted above that on the anticipatorybreach by one party the other party can exercise the option either to treat thecontract at an end, or, to treat it as still subsisting until the due date of performance comes. As pointed out by the Supreme Court in the case of 
State of Kerala Vs. Cochin Chemical Refineries, AIR. 1968
, “Breach of contract by one party does not automatically terminate the obligation under the contract : the injured party has the option either to treat the contract as stillin existence, or to regard himself a discharged. If he accepts the discharge of 

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