DISCHARGE OF

CONTRACTS
 DISCHARGE OF CONTRACTS
A contract may be discharged in mainly in one of the following manners:
• Impossibility of performance
• Performance
• Agreement or consent
• Breach of contract
 DISCHARGE BY
PERFORMANCE
Breaking down discharge by performance
• Who must perform?
• When should the contract be performed?
• Where should the contract be performed?
• How must the performance be done?
 WHO SHOULD PERFORM?
• Should it be done personally by the promisor?
• Can it be delegated?
• If promisee accepts performance from someone other than promisor, what happens?
• Look at Sections 40 and 41
• What if there is more than one promisor – how are joint liabilities devolved ? – Sections
42, 43 and 44
• After the death of a person, in whom does the liability vest?
• What about joint rights? – right to claim performance exists during their joint lives, and
after death, with the representative of the deceased person jointly with the survivor(s) and
so on… - Section 45
 CUTTER V POWELL, (1795) 101 ER
573
 Defendant expressly promised to pay the deceased petitioner thirty guineas, provided he
proceeded, continued and did his duty as second mate in the ship from Jamaica to
Liverpool. On the way, Cutter died before the voyage to Liverpool was completed.
 Cutter’s family demanded quatum meruit (reasonable sum of money for work completed).
The demand was for eight pounds as normal rate was four pounds per month and this
voyage typically takes two months.
 However, there is an explicit contract here, deceased had agreed for the higher sum on the
condition precedent being fulfilled. The condition predent was completing the voyage from
Jamaica to Liverpool. There is no agreement to pay for the proportionate work done /
attempted performance. In the absence of a custom to the contrary, the deceased is
entitled to no money in lieu of wages.
 DEVILAL V. HIMAT RAM, AIR
1973 RAJ. 39
 Construction of town hall in Udaipur was undertaken by the defendant – respondents. It
was not clear from the facts whether they set up a partnership firm for the said
construction. One of the defendants – Himmat Ram had passed away.
 The sub-contractor in this case was the plaintiff – appellant who is suing the defendant –
respondents for a sum of money due under his contract.
 Would the action of the plaintiff fail because he did not sue the legal representatives of
the deceased, Himmat Ram?
 Court: Section 44 provides that if the promisee releases one of the joint promisors that
does not discharge the other joint promisors. Also, the released joint promisor is anyway
liable to the remaining joint promisors.
 EXPLORING THE WHEN
AND WHERE
 Image: Fake news that did rounds – Samsung paid damages of USD 1 Billion to Apple in
nickels!! Would that be appropriate performance if it was under a contract?
 Time and place of performance
• Link back to the discussion with Section 38 – offer of performance by the promisor must
be at a proper time and place – reasonable opportunity of inspecting the item being
delivered
• Why are time and place important?
• Look at Sections 46 to 50
 EXPLORING THE WHEN
AND WHERE
 Section 46
• Performance by promisee – no need of application by promisee – no time stipulated –
reasonable time – question of fact (look at explanation)
 Section 47
• Performance by promisee on a certain day – no need of application by promisee – usual
hours of business on such day and at such place at which promise ought to be performed
• Read illustration – usual hours of business
 EXPLORING THE WHEN
AND WHERE
 Section 48
• Promise to be performed on a certain day – promisee has to apply to promisor for performance –
proper place and within usual hours of business
• Explanation – what is a proper time and place is a question of fact
 Section 49
• Without application by promisee - and no fixed place – duty of promisor to apply to promisee to
appoint a reasonable place for performance
• Look at illustration
 Section 50
• Performance of any promise may be made in any manner or at any time which the promisee
prescribes or sanctions
• Look at illustrations
 TIME OF ESSENCE IN A
CONTRACT
When a party to a contract promises to do a certain thing at or before a specified time, or
certain things at or before specified times, and fails to do any such thing at or before the
specified time, the contract, or so much of it as has not been performed, becomes voidable
at the option of the promisee, if the intention of the parties was that time should be
of the essence of the contract.
Effect of such failure when time is not essential
If it was not the intention of the parties that time should be of the essence of the contract,
the contract does not become voidable by the failure to do such thing at or before the
specified time; but the promisee is entitled to compensation from the promisor for any
loss occasioned to him by such failure.
 TIME OF ESSENCE IN A
CONTRACT
Effect of acceptance of performance at time other than that agreed upon. -
If, in case of a contract voidable on account of the promisor’s failure to perform his
promise at the time agreed, the promisee accepts performance of such promise at any
time other than that agreed, the promisee cannot claim compensation for any loss
occasioned by the non-performance of the promise at the time agreed, unless, at the time
of such acceptance he gives notice to the promisor of his intention to do so.
 When is time of essence in a contract?
 What are the consequences?
 TIME OF ESSENCE IN A
CONTRACT
 What if the contract says, ‘sale to be completed as soon as possible’?
 How must the term ‘specified time’ be interpreted? – does not cover situations where
one party is allowed to unilaterally assume / stipulate a time and cancel based on this
 Time of essence of a particular team / of whole contract?
 Intention of parties
• But is not time being specified, a question of fact?
• How does one gather the intention of the parties? – express words, nature of property,
nature of contract, surrounding circumstances
• Can you think of an illustration?
 TIME OF ESSENCE IN A
CONTRACT
 Express terms
• Permissible extension of time? Liquidated damages? Consequences of non-payment?
• delivery to be made ‘ten days or earlier’
• Time is of essence of a contract in contract or through subsequent reasonable notice
 Implied from circumstances and nature of contract
• contract for sale of oranges – perishable goods
• commercial contracts – presumption in favour of time being of essence
• What would be the case in construction contracts? – think of all the real estate delays in construction
and delivery of possession (connect this with Satyabrata Ghose)
• Burden of proof is on the person alleging time as being of essence
 RECIPROCAL PROMISES
 What are reciprocal promises?
 What is the order of performance?
 What if one of the parties does not want to perform his part of the bargain / promise?
 What if one party is preventing the other party from performing his promise?
 What is ‘ready and willing’? – reference is in Section 51
• Willingness – mental process to do an act; readiness – translating the will into action
• Does it performance should be tendered? – No
IMPOSSIBILITY – DOCTRINE
OF FRUSTRATION
An agreement to do an act impossible in itself is void.
Contract to do act afterwards becoming impossible or unlawful.-
A contract to do an act which, after the contract is made, becomes impossible, or, by
reason of some event which the promisor could not prevent, unlawful, becomes void
when the act becomes impossible or unlawful.
Compensation for loss through non-performance of act known to be impossible or
unlawful.-
Where one person has promised to do something which he knew, or, with reasonable
diligence, might have known, and which the promisee did not know, to be impossible or
unlawful, such promisor must make compensation to such promisee for any loss
which such promisee sustains through the non-performance of the promise.
 IMPOSSIBILITY – DOCTRINE
OF FRUSTRATION
Illustrations
(a) A agrees with B to discover treasure by magic. The agreement is void.
(b) A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The
contract becomes void. – Is it impossible to marry A?
(c) A contracts to marry B, being already married to C, and being forbidden by the law to which he
is subject to practice polygamy, A must make compensation to B for the loss caused to her by the
non-performance of his promise.
(d) A contracts to take in cargo for B at a foreign port. A's Government afterwards declares war
against the country in which the port is situated. The contract becomes void when war is declared.
(e) A contracts to act at a theatre for six months in consideration of a sum paid in advance by B.
On several occasions A is too ill to act. The contract to act on those occasions becomes void.
 IMPOSSIBILITY – DOCTRINE
OF FRUSTRATION
 Section 36 – contingent contracts based on an impossible event
• Is the logic consistent across the sections?
 What is impossibility? – Physical impossibility
 Look at the illustrations
 Why should it be void? Why is the law commenting on such agreements being void?
 Why does the Section talk about ‘unlawful’ here?
 TAYLOR V. CALDWELL, QB (1863)
3 B & S: 122 ER 309
 Development of the law in England
 Rule of absoluteness; contract must be performed without any excuses – exception
developed in this regard
 The Court implied a term in the contract, to remark:
‘but as subject to an implied condition that the parties shall be excused in case, before
breach, performance becomes impossible from the perishing of the thing without
default of contractor’
 Food for thought – Can the Indian Courts imply a term into a contract? Which Section
may empower it to do so?
 IMPOSSIBILITY – DOCTRINE
OF FRUSTRATION
 Theories used by English Courts to carve the exception for the doctrine of frustration
• Implied term – approach in Taylor v Cladwell
• disappearance of the foundation of the contract
• just and reasonable result – law’s intervention to impose a just and reasonable result
• radical change in obligation
 Allocation of risk among parties – so should it extend to events that were foreseeable by
the parties? Or was the risk assumed by the parties in such case?
 SATYABRATA GHOSE V. MUGNEERAM
BANGUR, 1954 SCR 310
 Indian law on frustration is not based on theories as under common law. Section 56 is the
positive law.
 Intention of the parties is irrelevant.
 Where there are implied / express terms that lead to impossibility, it comes under Section
32.
 Doctrine of frustration applies most often, to cases of subsequent impossibility.
 Test: When such an event or change of circumstance occurs which is so fundamental as
to be regarded by law as striking at the root of the contract as a whole it is the Court which
can pronounce the contract to be frustrated and at an end. The belief, knowledge and
intention of the parties are evidence, but evidence only on which the Court has to form its
own conclusion whether the changed circumstances destroyed altogether the basis of the
adventure and its underlying object.
 SATYABRATA GHOSE V.
MUGNEERAM BANGUR, 1954 SCR
310
 23. It is well settled and not disputed before us that if and when there is frustration the
dissolution of the contract occurs automatically. It does not depend, as does recession of the
contract on the ground of repudiation or breach, or on the choice or election of either
party. It depends on the effect of what has actually happened on the possibility of
performing the contract. What happens generally in such cases and has happened here is that
one party claims that the contract has been frustrated while the other party denies it.
 KRISHNA AND CO. V. THE
GOVERNMENT OF A.P. & ORS.,
AIR 1993 AP 1
 Krishna & Co. were granted a lease to quarry sand but were prevented from exercising
those rights because of resistance from local people. They ended up losing time on account
of trying to sort the issues out and thus, requested for extension of lease by one year. This
was refused by the authorities. Krishna & Co. are now praying for refund of the initial
deposit of 39,600.
 Lessor is responsible for ensuring that there are no obstacles in the performance of the
lease.
 The claim was actually made under Art.226 (writ jurisdiction of the High Court).
Defendants argued that no such claim could be made pursuant to writ jurisdiction.
 The Court holds that the refund can be granted even under Art.226. Contract had been
frustrated and thus, relief of refund was warranted.
ENERGY WATCHDOG V. CERC, 2017
SCC ONLINE SC 378
 What was the Force Majeure Clause in the PPA ?
 In the presence of a Force Majeure Clause, does the law under Section 56 apply?
 On facts, was Adani allowed to pray for discharge from obligations under the PPA?
 If the Court finds that the contract itself either impliedly or expressly contains a
term, according to which performance would stand discharged under certain
circumstances, the dissolution of the contract would take place under the terms of
the contract itself and such cases would be dealt with under Section 32 of the Act.
If, however, frustration is to take place de hors the contract, it will be governed by
Section 56.
 Court cites several examples to explain that merely because performance has become
onerous, parties cannot ask for a discharge.
ENERGY WATCHDOG V. CERC, 2017
SCC ONLINE SC 378
40. It is clear from the above that the doctrine of frustration cannot apply to these cases as the fundamental
basis of the PPAs remains unaltered. Nowhere do the PPAs state that coal is to be procured only from
Indonesia at a particular price. In fact, it is clear on a reading of the PPA as a whole that the price payable
for the supply of coal is entirely for the person who sets up the power plant to bear. The fact that the fuel
supply agreement has to be appended to the PPA is only to indicate that the raw material for the working of
the plant is there and is in order. It is clear that an unexpected rise in the price of coal will not absolve the
generating companies from performing their part of the contract for the very good reason that when they
submitted their bids, this was a risk they knowingly took. …But the fact that a non-escalable tariff has been
paid for, for example, in the Adani case, is a factor which may be taken into account only to show that the
risk of supplying electricity at the tariff indicated was upon the generating company.
 ENERGY WATCHDOG V. CERC, 2017
SCC ONLINE SC 378
12.3 Force Majeure: Force Majeure means any event or circumstance or combination of events
and circumstances including those stated below that wholly or partly prevents or unavoidably
delays an Affected Party in the performance of its obligations under this Agreement, but only
if and to the extent that such events or circumstances are not within the reasonable
control, directly or indirectly, of the Affected Party and could not have been avoided if
the Affected Party had taken reasonable care
Natural FM events (Act of God, earthquake), Direct Non-natural FM events (nationalization,
compulsory acquisition), Indirect FM events (war, radioactive contamination).
12.7: Available Relief for a Force Majeure Event: No Party shall be in breach of its
obligations pursuant to this Agreement to the extent that the performance of its obligations was
prevented, hindered or delayed due to a Force Majeure Event;
12.4 Exclusions: Change in cost of fuel…
DISCHARGE BY AGREEMENT
OR CONSENT
 Discharge by agreement or consent:
• Accord and satisfaction – Section 63
• Remission – Section 63
• Alteration of terms – Section 62
• Novation of terms – Section 62
 Parties are free to enter into a contract and likewise discharge obligations under it
 Consent has to be mutual – substituted contract must be valid and enforceable
 Consideration – putting an end to mutual obligations under earlier agreement
 SECTION 62
Effect of novation, rescission and alteration of contract.
If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it,
the original contract need not be performed.
 Look at illustrations
 Novation – substitution of original contract with a new one – parties intend to supersede
the old agreement between them with the new one
 Novation – parties agree to add a new party / alteration of terms
 Rescission – abandonment of rights mutually existing under a contract
 Material alteration – has the affect of canceling the agreement when done unilaterally
 REMISSION
 Section 63: Every promisee may dispense with or remit, wholly or in part, the
performance of the promise made to him, or may extend the time for such
performance, or may accept instead of it any satisfaction which he thinks fit.
 Resmission
• Discharge by agreement between parties
• Is consideration necessary here?
• Look at illustration (a)
• Why is the right reserved to the promisee only?
 ACCORD AND SATISFACTION
 Recap the earlier discussion on accord and satisfaction
 D & C Builders and Pinnel’s rule
 Section 63: Every promisee may dispense with or remit, wholly or in part, the
performance of the promise made to him, or may extend the time for such
performance, or may accept instead of it any satisfaction which he thinks fit.
 Accord : agreement and satisfaction: consideration
 Look at the illustrations to Section 63
 RAM KHILONA & ORS. V.
SARDAR & ORS., AIR 2002 SC 2548
 Addition of independent witnesses was not a material alteration of the terms of the
contract in question (agreement for sale)
• Such addition, did not affect the validity and enforceability of the agreement.
“A material alteration is one which varies the rights, liabilities, or legal position of the
parties as ascertained by the deed in its original state, or otherwise varies the legal effect of
the instrument as originally expressed, or reduces to certainty some provision which was
originally unascertained and as such void, or which may otherwise prejudice the party
bound by the deed as originally executed.”
 HOCHSTER V DE LA TOUR ,
(1853) 2 E & B 678
Facts: The plaintiff was a courier, who, in April, 1852, was engaged by defendant to
accompany him on a tour, to commence on 1st June 1852, on the terms mentioned in the
declaration. On the 11th May 1852, defendant wrote to plaintiff that he had changed his
mind, and declined his services. He refused to make him any compensation. The action
was commenced by plaintiff on 22d May.
Issue: Can plaintiff sue for compensation? Can there be a breach of contract before 1st
June 1852?
In this very case, of traveller and courier, from the day of the hiring till the day when the
employment was to begin, they were engaged to each other; and it seems to be a breach of
an implied contract if either of them renounces the engagement.
 HOCHSTER V DE LA TOUR ,
(1853) 2 E & B 678
 Connecting this with impossibility:
If a man promises to marry a woman on a future day, and before that day marries another
woman, he is instantly liable to an action for breach of promise of marriage.
 If upon a contract to do an act on a future day, one party renounces the contract, this
results in relieving the other party from having to perform in the meantime.
In such event, there seems no reason for requiring that other to wait till the day arrives
before seeking his remedy by action: and the only ground on which the condition can be
dispensed with seems to be, that the renunciation may be treated as a breach of the
contract.
 MURLIDHAR CHATTERJEE V.
INTERNATIONAL FILM CO ., AIR
1943 PC 34
 Defendants had to deliver prints of films to the plaintiff as per the terms of the contract. Plaintiff
alleges breach by defendants; refund of Rs. 4000 and recovery of Rs. 3000 as damages. Defendant, in
turn, alleges that they were ready and willing to perform and that there was a breach by the plaintiff.
 Issue in this appeal: Whether a party who has put an end to a contract under Section 39 is liable to
restore any benefit received by him from the other party?
 Before the PC, the claim for damages and expenses is not pursued. Plaintiff was unable to prove
breach by defendants in the lower court.
 Section 39 does not use the terms void / voidable – it applies to cases where one party rescinds the
contract because of the other party’s refusal to perform, former is entitled to sue for damages.
Hence, it appears that contract has not become unenforceable by law. Can the person who rescinds
the contract, ask for restoration of any benefit received? Court answers this as a yes.
 Plaintiff can claim refund of Rs. 4000 but defendants can claim set-off of the damages owed from
plaintiffs.