13

DISCHARGE OF CONTRACT

HOW IS TIIE CONTRACT DISCHARGED?

Discharge means "termination" of a contract. By discharge the rights and obligations of the parties
come to an end. The contract may be discharged in any of the followLg ways:

I. BY PERFORMANCE:
1. By performance of obligation: If both parties to the contract have performed what they have agreed
to do, the contract is discharged (Sec.37). Performance of obligation by parties to the contract puts an end
to the contract. The obligations of the parties continue till contract is determined according to its terms
lBihar state Electricity Board v. uMI special steels Ltd. (2000) 8 scc 5601.
2. By refusing tender of performance (Sec.38): Offer of performance to the promisee shall have
the same effect as performance. Therefore, if a pafi offers to perform his promise and the offer has not :

been accepted by the other party, the promisor is not responsible for non-perforrnance. He is discharged
from all obligations. Therefore, refusal to accept "offer of performance", discharges the party making the
offer.
3. By promisee failing to offer facilities for performance (Sec.67): If the promisee neglects or
refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused
by such neglect or refusal to any non-performance caused thereby.
o
ILLUSTRATION:
fr
I contracts with B to repair 8's house. I neglects or refuses to point oul to I the places in which his house requires repair. I is
excused for the non-performance of the contract, if it is caused by such neglect or refusal. tt
T
II. BY BREACH: ci
1. By refusal (Sec.39): When aparty to a contract has refused to perform, or disabled himself from it
performing his promise in its entirefy, the promisee may put an end to the contract, unless he has signified
by words or by conduct, his acquiescence in its continuance. Breach of contract occurs where a party pfu.", H
to perform his part of the promise. The other party then has a right to rescind it. as

Reflsal to perform the contract must be in its entirety, otherwise the other party would not be justified w.
in putting an end to the contract. What is entirety is a question of fact in .each case depending upon what atr
are the important or essential ternrs of performance of the contract. Refusal to perform any such ierm'will
be refusal to perform the contract in its entirety. Refusal to perform must be absolute. and without any t8
intention to perform the contract term will be refusal to perform the contract- It must be communicated rq
totheotherpartytothecontract.Breachofcontractmaybe.actua1,or.anticipatory,. brr
2. By actual breach: The actual breach occurs when during the performance of the contract or at di(
the time when the performance of the contract is due, one party either fails or refi.xes to perform.his obligation
nnder the contract; (For remedies on breqch of contrait tL" discussion in Chaptei I4). - i, ' agt
bre
98
 r
;..
v:

Discharge of Contracl
99

(a)A agrees to deliver to B 5 bags of sugar on lst January.

(b) A agrees to deliver to 5 bags on 1st January.
'B
to accept delivery. This is a breach of contract by B.
He fails to do so on lst January. There is a breach
of contract by l.
on lst January, he tenders the sugar to B. But B for no valid
reason refuses

3. By anticipatory breach of contract:

When a parry to a contract refuses to perform his part
of the contract before the actual time of the
performance of the contract is due, it is calied an 'anticipatory
breach, of contract.
Anticipatory breach of contract may be _
(i) by repudiation of the contract (express renunciation); or
(ii) by impossibility of performance (inplied renunciation).
- whgn a party communicates his inability to perform his part of the contract before the time fixed for
the actual performance is due, he is said to have .*pr.rrry
repudiated th;.;;;;;.
when the breach takes place by either party to the contract
: performance of the contract impossible, anticipaiory
by his own vol,ntary act, which makes
breach of contract is committed by impossibility
perforrnance' Here impossibility is creaied by one pu.ty of
to the contract before the performance is due. It
is a case of implied renunciation of a contract
,
ILLUSTRATION:

. I promises to sell his car to B on or before lst May; but before lst May, I sells his car
acl that the peiformance of his obligation towards B is impossible to c. Here I had performed zuch a voluntary
and therefoie, "anticipatory breach by impossibility,,
is committed.
of anticipatory breach: Remedies or rights of the prohisee
;t'H:l#ffes on anticipatory breach

In case of anticipatory breach, the aggrieved party has the folrowing

remedies:
(i) He may elect to rescind the contract,for example, treatthe
repudiation as an immediate breach
putting an end to the contract and immediately sue
for damages; or
(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 responsible for all the consequences
of non-perforrnance.
However, if the aggrieved party opts for the second course,
he keeps the contract alive for the benefit
of the other party to take advantage of the intervening circumstances,
if an!, uod;;;;;y who has previously
repudiated may, notwithstanding his previous repudiation,
still perform it,lf he .un. it is open to the promisor
fo change his mind andperform. In other words, the contraciremains
alive up to the day of performance.
Therefore, in the intervening period, if any such supervening
circumstance happeo", tn""."puiia;;;;;
can take advantage of such supervening circumstances
whic"h would justiff him in'aeclining to complete
it.
ln Avery v' Bowden (1s55-51 & B 714), B chartercdl's ship
agreeing to load cargo within 45 days.
However, on arrival of the ship, B showed his inabilrty
to loal .u.go I however, did not treat the repudiation
as irnrnediate breach of contract and chose to.
yait ittt qs days. Before explry of 45 days, war broke out
which rendered perfonnance illegal' It was hel{ that A
could.not ,u"ceed as contract had ended by frustration
and not by breach.
In Hochster v' De Lo Tour (1853-2E
! B 678), A engagedB as his courier on a tour from lst June
lB52' for three months at f l0 a month. Before tne expiry oItf;r.. months, A wroteto B thathe no
required his' services' B immediately sued A for breach longer
oi contract. It was held that the contract had been
broken by express renunciation and the plaintiff was, therefore,
entitled to the relief immediately since he
did not choose to wait until the day of perfor*ur"..
The aggrieved party is not bound to treat the contract
as broken immediately. It is only when the
aggrieved party exercises his option to hedt the contract
as rescinded, then he mai treatthe refusal as a
breach and sue on the contract for any damage then
sustained. It was held that a contract is created from
100 Business Law for Management

the date it is made and not from the date when its performance is due. Therefore, where a fiutn promises
to marry on a fufure day and before that day he marries another woman, he is immediately liable to an
action for breach of promise of marriage. In Frost v. Knight (1872L. R. 7 Exch. 1l), where iKpromised
to marry F on death of his father and while his father was living he broke off the engagement, it was held
that F was entitled to relief.
ILLUSTRATIONS:
(a) A, a singer, enters into a contract with B, the manager of a theatre. to sing at his theatre two nights rn every week during the
next two months, and B engages to pay her Rs.l00 for each night's performance. On the sixth ni$\ A wi1lful1y absents herself from the
theatre. .B is at liberty to put an end to the contract.
(b) A, a singer, enters into a contract with B, the manager of a theatre, to sing at hjs theatre two nights in every week during the
next two months, and .B engages to pay her at the rate of Rs.l00 for each night. On the sixth night I willfully absents herself With the
assent of B, ,4 sings on the seventh night. ,B has signified his .acquiescence in the continuance of the contract, and cannot now put aa end
to it, but is entitled to compensation for the damages sustained by him through l's failure to sing on the sixth night.
(c)A agreed to purchase from B under two contracts 300 tons of sugar to be delivered on different dates. A failed to take delivery
under the flrst contract. B claimed to rescind both the contracts. B is not etrtitled to rescind the second contract as there was no refusal
on the part ofl within the meaning of Sec.39 fRash Behary y. Nritlya Gopal 1906 33 Cal. 4771.

Contract by this method is discharged only when the aggrieved party accepts the repudiation of contract
and elects to treat it as discharged. Right of rescission firay be waived by words or conduct, signifying his
acquiescence in its continuance. Election to rescind, once made is conclusive.
When the promisee has determined his choice of treating the contract as rescinded; then whether he
sues for damages or not, it is not open to the promisor to go back on his refusal and treat the contract as
subsisting lJhandoo Mal Jagan Nath v. Phulchand Fbteh Chand 1924 Lah. 5 497).
Me4sure of damages: When an anticipatory breach of contract is committed, damages are measured
as under
-
(i) If reprrdiation of the contract is accepted and the contract is put to qn end immediately, the damage
will be measured by difference of price prevailing on the date of breach and the contract price.
(ii) If the contract is kept alive then the damages will be measured by difference between the contract
price and the price prevailing on the date fixed for the performance.
In case of delivery by installments at certain date, the measure of damages is the sum of difference
between the contract and the market price of the several installments on the respective final days for performance.
When the contract is put to an end, the aggrieved parfy may bring an action for damages for breach,
but he will be bound to restore to the other parfy under section 64 the benefits he may have received under
the contract.
The following :illustration will explain the law regarding anticipatory br,each of contract:
ILLUSTRATION:
A agrees on 10th May to supply B 10 kilos of wheat on 1st June at Rs.lO a kilo. On 20th May, I writes to B showing his inability
to supply wheat.at Rs.10 a kilo. Now.-B has the following righ15;
(i) He may treat the repudiation as ilimodiate breach of contract and sue A fot damages. .B is entitled t"

to measure dam4ges as they stand on the date of repudiation, i.e,, if the price of wheat prevailing on 20th a
May, the date of repudiatiorq is Rs.15 a kilo and B purchases l'O:kilos at Rs.,15 a kilo; he is entitled to, b
receive Rs.5 a kilo as damages fuom A.
(ii) He may treat the contract as still operative and subsisting and wait till lst June, the date of performance ri
of the contract. In such a case, A can in spite of his earlier repudiation, perform his part of promise, i.e., tl
supply 10 kilos of wheat on lst June. ,B cannot refuse the offer of performance as he has opted to treat S
the contract as subsisting. Similarly, A has a right to take advairtage of any intervening circumstances which
would justiff him in declining to complete his part of promise, for example, if the wheat is destroyed on
I\
ZithMay due to floods, B cawtot claim damages as the performance of contract has now become inpossiblo
and A is, therefore, discharged. al

cl
g
H
x
s.
&"
s:.
Discharge of Contract
101

III. BY F'RUSTRATION:
By impossibility (Sec.56):Irnpossibility may exist at the time of formation of the contract or arise
subsequent to the formation of the contract. we have seen above under'void agreements,
that an agreement
to do an act impossible in itself is void. When the performance of a contract becomes subsequently
impossible,
the contract becomes void. When a contract was capable of being performed at the time
it was entered into
but subsequently its performance becomes impossible, it is callid supervening impossibility. In
both the
cases, the contract is discharged due to impossibility of its perforlnance, for law does not
recognize what
is impossible. Impossibility creates no obligation.
Irr&ossibility must be physical or legal impossibility and not impossibility in reference to ability
or
circumstances. "commercial impossibility", i.e., extreme or unforeseen cost oi diffrculty
of prrfo.-urrr.
is no excuse. In the absence of any eapacity to perform contract, parties are not absolved from
their obligation
to carry out the contract.
The word impossible has not been used in the sense.of physical or literal impossibility.
The perforrnance
of anact rnay not be literally impossible but it may be impracticable and o."l"r. from the poir, oiui"*
of the object and purpose which the parties had in view, and i] an untoward event or change
of circumstances
totally upsets the very_ foundation upon which the parties rested their bargain, it can ue[, *"tt
Ue ;;td ;;;
the promisor finds it impossible to do the act which he promised to dollmpossibility
and frustation are
often used as interchangeable expressions. The doctrine oi frort utio, is really an aspect
or part of the law
of discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done
and hence comes within the purview of section 56lsatyabrata Ghosel. Mugr""rom
Bangur & Co. AIR
t9s4 sc 441.
Events subseqibnt to frustration of contract cannot be invoked to revive the contract
. so as to seek
specific performance thereof lK. Narendra v. Riyiera Apartments (p) Ltd. (1999) 5 SCC
771.
(Also see discussion on 'Agreements to do impossible acts' under 'Void agreements' in
Chapter 5).
Cases of supervening impossibility:
(i) Destruction of the object necessary for performance of the contract.
(ii) Change of law.
(iii) Death or personal incapacity.
(iv) Out-break of war.
(v) Non-existence of particular state of things which forms the basis of the contract.
In all the above cases, performance of an obligaiion becomes impossible and, thorefore, the contract
is discharged.
Exceptions: Diffioulty of,performance, commercial inpossibility, strikes and lockouts, civil.disturbances,
riots, failure of one of the objects when contract is entered into for several objects, default or
failure oi
a third person on whose word the promisor relied increase in the cost or p".ior-unce, are not
covered
by the doctrine of supervening irryossibility, and therefore the contract is not discharged.
If
the performance of contract is rendered unlawful either for determinate or indeterminate period
of
time, the contract would not stand discharged unless the ban on its perforrrance existed on the day
or during
the time in which it has to be performedfMugneeram Bangur & Co. p. Ltd. v.
Gurbachan Singi AIR 1965
sc 1s231.

IV. BY AGREEMENT
1. By consent (Secs.62-64): Contract can be terminated or discharged by mutual express or implied
agreement or consent between the parties.
2. By Novation: 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.
lo2 Business Law for Management

When a new contract is substituted for an exiSting contraot, either between the same parties or between
different parties 'novation'occurs. For example, in case of transfer of.partnership share,by a partner,rBs
a result of which a new partnership is constituted and the ereditors agree to look upon the new partnership
firm for the liabilities of the old firm, novation occurs, whereby the liabilities and obligatiorrs of the old

Novation means the wiping out of the oiiginal contract as well as the creating of a new valid contract.
If the new agreement is invalid it cannot serve as novation, and the original contract continues unless the
rights'there under are expressly abandoned.
Therefore, novation may occur in two ways:
(a) New party is substituted for the old one [Illustration (a) below].
(b) Parties may substitute new contract for the old one [Illustration (b) below].
A novation can be express or implied from the circumstances. Consent to novation could be inferred
from conduct without express words. Consent can be implied from conduct [Ong Siew Keet v. Wan Ariff
Bin Wan Hamzah (2012) 5 CLJ 4041.
One of the essential requirements of 'novation' is [hat there should be complete substitution of a new
conffact in place ofthe old- A substituted contract should rescind or alter or extinguish the previous contract.
Where, parties entered into fresh contract by novation/substitution of original agreemeni by mutual ionsent
and the new agreement did not make any provision in respect of any disputds arising undgr original,agreement
or any settlement between parties, nor did it contain arbitration clause to resolve disputes by arbitration,
it was held that the new agreement is pure and sirnple novation of originat conffact by mutual consent and
the arbiffdtion clause perishes lYoung Achievers v. IMS Learning Resources (P) Ltd. Q0l3) 10 SCC 5351.
But if the terms. of the 'two contracts are inconsistent and they cannot stand together, the subsequent contract
cannot be said to be in substitution of earlier contract flatq Construction v. Dr, Rameshchandra Ramniklql
Shah (2000) 1 SCC 5861. Novation, rescission or alteration of a contract can only be done with the agreement
of both the parties of a contract. Both the parties have to agree to substitute the original conffact with a
new contract or rescind or alter ICITI Bank N.A. v. Standard Chartered Bartk A8.2003 SC 46301.
Any novation in contract was to be done on the same tefins as are required for entering into a valid
and concluded coniract. No change in contract could have been made rmilaterally IBSNL v. BPL Mobile
Cellular Ltd. (2008) 13 SCC 5971.
In Delhi Development Authority v. Joint Action Committee, Allottee of SFS Flats (2008) 2 SCC 672,
it is held that when a contract is worked out, a fresh liability cannot be thrust upon a contracting party.
ILLIJSTRATIONS:
(a)l owes money to I under the contract. lt is agreed between A, B andC that.B shall henceforth accept C as his debtor instead
of ,{. The old debt of .4 to.B is at an end and a new dJt from C to B has been contracted. t
(b) ,4 owes I Rs.10,000. I enters into an agreement with 8, and gives ,B a mortgage of his (l's) estate for Rs.5,000 in place of (
the debt ofRs.10,000. This is.a new contract which extinguishes the old.
I
.(c) I
owes I Rs.1,000 under.a contraot. B owes C Rs.1,000. I orders A to qedit C with Rs.1,000 in his books, but C does not
assent to'the arrangement. B still owes C Rs.1,000 and no new conhact has been'enteied ihto.

Essentials:
(1) Novation occurs with the consent of both the parties.
(2) The new contract must be one which is caphble of enforcement at law. If new contract is not' :
enforceable, the parties shall be bound by the original contract.
(3) The agreement to substitute the new contract for the old must not be made after the breach of
the,original contract.
1

f ,'
Thus, in Manohar Koyal v. Thakur Dos Naker (1888 15 Cal. 313), where the plaintiff sued to recover
the sum due on a bond after defendant failed to honour,his subsequent promise after due date of bond to',:
pay part amount in cash and paft by a new bond, it was held that the plaintiff was entitled to sue for breach
of original contract as the original contract was discharged by breach and not by novation.
 Discharge of Contract
i03
a')
:::
F. ln Build India
Construction System v. (Jnion
of India AIR 2002 SC 2437, where the general terms
ea.
and conditions applicable to Government conhacts were amended and made expressiy operative
frospectivelf,
:i-:.
S+ the changes in the conditions did not affect a contract made earlier.
3::
;.
{ In novation, the old contract is completely extinguished or discharged. A suit based on it is not maintainable
astheoldcontractisnottobeperformed.lnMarkandraiv.virendrarai(lgl7-lgBom.L.R. g37),Aadvanced
money to a partnership firm on certain repayrnent terms. Before the entire loan amount could be repaid,
:r'
one of the partners dred. A acceirted new partners as his debtors agreeing to receive back the loan amount
on certain other terms. It was held here that this constituted a new contract with surviving partners only.
;-
ti
An agleement of sale by a landlord agreeing to sell the premises to the tenant can end the landlord tenant
-' relationship lR. Kanthimathi v. Beatrice xavier AIR 2003 sc 41491.
e.
g
Where in respect of a flat, two contracts are entered into with an express provision in the later agreement
&:.i that the earlier agreement would stand till the entire amount *u, ,.pui4 t'he earlier agreement could be
i:,. invoked by the purchaser, if the amount was not repaid llata Construction v. Romeshchandro Ramniklal
p shah (Dr.) AIR 2000 SC 380; Tp George v. state if Kerala AIR 2001 sc 8161.
-
L.:
Consideration: Section 62 does not require any further consideration for the validity of the substituted
r
Lla
contract than putting an end to the obligation irnder the original contract.
E.
V. BY ACCORD AND SATISFACTION
ii
$i
, 1. To do somelhing instead (Sec.63): Everi promisee may dispense with or remit the performance
i'.
t, of promiqe made to him and accept, instead of it, any satisfaction which he thinks fit. Whe; one of the
t'
F parties to a contract in order to obtain release agrees to do something other than what he was bound to
b:
6 do by the contracti'qnd when he has discharged the obligation and has been set free, the contract is said
=
to have been discharged by oaccord and satisfaction'. Both the parties must assent to such an arrangement.
ry

ti
i It may be e.xpress or inferred from the conduct of the parties to the contract.
l:i
In other words, where a lesser sum is actually paid than what is due under an existing contract, tfre
*l
t:
new contract is called 'accord' and the actual payment is called 'satisfaction'. An illegal contract cannot
i:' constitute an accord and satisfaction lunion carbide corporation v. (Jnion of India AIR lgg2 sc 24g].
r: Acceptance under protest of payment in full satisfaction of amount due under the contract was no accord
E-
i. and satisfaction. Any protest must be made before accepting the payment
fBhagwati Prasad Patvan Kumar
E v. Union of India AIR 2006 SC 2331]. Where the acceptance of performance is under protest or made
E
E without prejudice or under a mistaken belief, performance tendered in frrll satisfaction doei not operate as
T
accord [R.L. Kalathia & Co. v. State of Gujarat AIR 2011SC 754; State of Orissa v. Larsen & Toubro
e'
I Ltd. AI&.2005 Ori. 1831.
lnKeshovlol Lallubhai Patel v. Lalbhai Trikamlal Mills (AR 1958 SC 512), Supreme Court observed
that the promisee cannot by unilateral act extend the time of performance of his own accord and for his
own bene{it. Consent of the other party is necessary.
ILLUSTRATIONS:
(a) ,4 owes -B Rs.1,000. B agrees to accept Rs.750 in full satisfaction. The agreement to pay Rs.750 is an accord and tbe actual
payment is the satisfaction
(b) ,4 owes B Rs.5,000. A pays B, and accepts, in satisfaction of the whole debt, Rs.2,000 paid at the time and place at which
Rs.5,000 were payable. The whole debt is discharged.
(c)l owes A, Rs.5,000. C pays B Rs.1,000 and I accepts them in satisfaction of claim on l. This payment is a discharge of the
'whole claim.

(d) I owes 8, under a. contract, a zum of money, the amount of which has not been ascsrtained. I without ascertaining the amount
gives to B, and B, in satisfaction thereoq accepts, the sum of Rs.2,000. This is a discharge of thc whole debt, whatever may be its amount.
(e) I owes I Rs.2,000, and is also indebted to other creditors. I makes an arrangement with his creditors, including B, to pay
them
a composition of frfty paise in a rupee upon their rbspective demands. Payment to.B of Rs.1,000 is a discharge of B's demani.
(f) I owes large sum of money to B. C is offering to pay 8'a lesser sum in full satisfaction of .B's claim on l. B cannot recover
balance froml after receiving payment in fuIl satisfaction. llala Kapur.Chand Godhav. Mir Nawab Himayatalikhan Azamjah AIR
I96j
sc 2s01.
 Business Law for Management

2. By Remission and Waiver (Sec.63): Waiveir means 'abandoning' the rights. When a party to the
contract abandons or waives his rights, the contract is discharged. Waiver is an abandonment of right which
normally everybody is entitled to waive. A waiver must amount to a release.
ILLUSTRATION:
,4 promises to paint picture for B. I afterwards forbids him to do so. I is no longer bound to perform the promise.

Both the parties mutually agree that they shall no longer be bound by the contract. It amounts to a
release. Waiver signifies nothing more than an intention not to insist upon the right. Waiver must be an
intentional act with knowledge ILIC v. Ramdas Agarwal AIR 1979 Pat. 124]. Promisee may dispense with
6r remit, wholly or in part, the performance of the promise made to hirn, or may extend the time for such
performance. Both the parties may consent to reciprocal discharges. Such a remission does not require any
consideration. Extending the time of performance may be done without an agreement and it, therefore,
requires no consideration fDavis v. Cundasami 1869 19 Mad. 398].
(

There is no waiver of breach as to disentitle termination of an earlier contract, where actions after (

breach are done throughout maintaining without prejudice and the subsequent agreement had a without I
prejudice clause lsikkim Subba Association v. State of Sikkim AIR 2001 SC 2062; Tata Industries Ltd. v. (
Grasim Industries Ltd. AIF..2008 SC 29701. (

3. By Rescission (Sec.64): When a person at whose option a contract is voidable rescinds it, the other I
party thereto need not perform his promise. He is discharged from his liability under the contract. If the
party rescinding a voidable contract, has received any benefit there under from another party to such a
contract, he must, restore such benefit, so far as may be, to the person from whom it was received. i
When a person rightfully rescinds the voidable contract, he is entitled to compensation for damages i
which he has sustained. On treating the contract as voidable, the agreement becomes void. (
1
Rescission may occur by mutual consent of the parties or when one party fails to perform his obligation
the sther pafi may rescind the contract. Rescission ofa contract cannot be in part only. The entire contract I
must be rescinded.
ILLT]STRATIONS: d
(a)I induces .B to enter into a contract by fraud. The contract is voidable at the optlon of -B. He may, therefore, rescind the contract.
I.
(b) l, singer, contracts with -8, the manager of a theatre to sing at his theatre for two nights in every week during the next two
months,.and B engages to pay her Rs.l00 for each night's performance. On the sixth night, A willfully absents herself from the theatre,
and B, in consequence rescinds the contract. B is entitled to claim compensation for the damages which he has sustailed through the non-
fulfillment of the contract.
Rescission may take place in any of the following modes:
- (a) By mutual consent.
(b) If a contract is voidable, one of the parties may rescind the contract,
(c) By alteration or change in the terms of the contract.
(d) By non-performance of a contract by both the parties for a long period. This may amount to implied
rescission.
(Consequences of rescission of voidable contract are discussed under 'l/oid agreemenls' in
chapter 7).
VI. BY OPERATION OF LAW
A party is also released from the contract, where performance of the contract is dispensed with or
excused under the provisions of this Act or any other law. A contract is discharged or terminated by operation
of other
ilHrh.'l*"rt#:I;Lr on a person being adjudicated insolvent, he is released from ail
his debts and liabilities provable in insolvency. The rights and liabilities are transferred to an Official Assignee
or an Official Receiver under the-Presidency Towns Insolvency Act or under Provincial Insolvency Act,-
as the case rray be. The order of discharge gives a new lease of life to the insolvent. He is discharged from
 Discharge o/ Contract
105

all obligations arising from all his earlier contracts. A party is, therefore, released from performing his part
of the contract by law of insolvency on being adjudicated as an insolvent.
(ii) By merger: Merger of superior right into an inferior right,for example, when a higher security
is accepted in place of the lower security, inferior or lower security vanishes or merges into a higher security,
an ordinary debt is merged into a mortgage, higher security; or the right of lessee is changed into a rigiit
of ownership.
\.II. BY UNAUTTIORIZED MATERIAL ALTERATION
!n cases of material alteration by one party to the contract without the consent of the other party, the
contract is discharged. A material alteration changes the character of the contract or alters the rights and
liabilities of parties to the contract. Any alteration is material which affects the substance of the contract.
It varies the legal effect of the instrument. Alteration of document also, which affects the nature or identification
of the document discharges the contract. However, alteration in a deed made in good faith in order to give
effect to the real intention of the parties cannot be said to be a material alteration
lBiay Krishna Paramount
v. Kali Chavon Mandrtl AIR 1978 Cal. 153]. An altered document may however, be received in evidence
on behalf of the person in whose favour it is executed for proving the right, title and interest created by
such a document.
VUI. BY LAPSE OF TIME
Contract is discharged. also by lapse of time. If the creditor does not file a suit to recover his debt
amount from the debtor within a period of limitation as laid down under the Limitation Acq his remedy
is debarred. The contract is terminated by virtue of the Limitation Act and the creditor cannot recdver his
debt. For example, the period of limitation to file a money suit is 3 years. If within 3 years the creditor
fails to file a suit to recover his amount, the debtor is discharged.
IX. BY DEATH
Where a contract is personal in character, or where personal skill or ability is involved, death of promisor
discharges tbe contract (Sec.37).
ILLUSTRATION:
I promises to paint a picture for B by a certarn day, at a certain price. ,4 dies before the day. The contract cannot be enforced either
ii by l's represeniatives or by B.
I
ootr
 rd Taxation
Indian Contract Act,lE?Z(Unit 2)
85

ii) ,]r}ot the course of Performance: If any parry has performed a parr
of the contract and then refuses or fails to perform the remaining part of
the contract, it is,called an actual breach of contract during the course of
performance. For example, X agreed to sell to Y 10 toni, of wtreai
O
?8,000 per ronne to ue.ai{vered In two equal instalmentr on 20.h o;6i1
and 2lql October. On 20t October, X deiivered 5 tonne and refused to
deliver remaining 5 tonne. It is an actual breach of contract dilil;;

2,,ll3. !glq$re,*f
.,

A remedy t party (i.e., the pafty

not at default)'forthe enforcement of a right
undeil contiact. Various rr*uairi
,hen the availabletojanaggrGvedpartv-areasfollois:-,_--]--_-=,-
.'ore 'the
tct even
ray,lake

contract

)tonnes
On 1o
,Xhas 1) Rescission of Contract: When a breach of contact is committed by one
PffiY, the other party may sue to treat the contract as rescinddd. fn ru.f, u
case, the aggrieved party is freed from all his obligations under the conftact.
lytoa
in its For ex{mple, A fromises B to supply 100 bags of rice on a certain date, B
promises to pay the price on the rci-p, of theloods. A does not deliver the

tonnes
On I't 2) suil ,po.Qrqnto\ Mgruii..The term quantum meruit indrcates
,.e rnggl,
as _
X has
Iiation. arise by onJparty, r,ras uiCome,Ai.n*gri
ilytoa tilift;;r-y
by the breach of ttre .oiiui.t ;y In sueh cases the plaintiff is
ng, his *
entitled'tolthe value of the services rendeied tt r goods detv#d till the-

"it* *igi;J;;;;;;;;-ffi#
rntract, not on the basis
toPtrt,tdischarge
..,'9fthe'9u4si;,9,9,,1tr'4st..,.,;-,
,rds or
3) S-uit,,for $peclfic Performanse: Specific performance means the actual
'carrying out of the
of the :ontact by the parties thereto. Where a parry fails to rur.y
out the contract, the Court may at its discretion, Jido',t J derendant to
ails to gerform fris undertakin8-as per the terms of the .ortr.rr noririonr regarding
the granting of this relief are dealt with in Specific,Relief Act, lBlT
l, i.t is .

4) Sull. for lqirrlction: An injunction is a mode of securing the specific

)0 per
in breach of'a negative pnn of a conract (i.e., where ha is Aoi.ng something
rn 2l*t
actual- y_qic.h^he g'orni"Ia ylilgr,+; a;;ry i, i,, Jirt.rir",irr*;;;;;;
the defenqTr yrrdTng
Sry rrr* doing what he promised not ro do. such'
an order,gf the Court is ealted an injunction, "
'

5) f;J' )--,t o