DISCHARGE OF CONTRACT

• Discharge means termination of the

contractual relationship between the parties.
• A contract is said to be discharged when it
ceases to operate.
• When the rights and obligations created by it
come to an end.
 MODES
1. By performance
2. By agreement or mutual consent
3. By impossibility of performance
4. By lapse of time (Limitation Act)
5. By operation of law
6. By breach of contract.
• Novation – It takes place when a contract is
substituted with an existing contract between
the same parties or a contract is rescinded in
consideration of a new contract being entered
into same terms between one of the parties
and third party.
• Eg – E owes Rs. 10000 to V. He enters into
agreement with V and gives V a mortgage of
his (E’s ) estate for Rs. 6000. This is new
contract of balance Rs 4000 is formed which
extinguishes the old contract of Rs 10000.
• Rescission – It takes place when all or some of the
terms of the contract are cancelled.
• It may occur –
1. By mutual consent of the parties or
2. Where one of the party fails in the performance of
his obligation. In such case the other party may
rescind the contract and has right to claim
compensation for breach of contract.
• Eg – J induces H to enter into a contract by fraud. In
this case the contract is voidable at the option of H.
He (H) may rescind the contract.
• Alteration - When one or more terms of the
contract are changed (Altered) by mutual
consent of the parties to the contract.
• In such case the old contract stands
discharged
• Eg – G enters into contract on 1st November
with K for supply of 100 kg of sugar by or on
16th November. G and K may alter / change
the terms of contract my mutual consent , by
deciding to deliver the goods on 20th
November.
• Remission – It means acceptance of a lesser
fulfilment of the promise made.
• Eg – Acceptance of lesser amount than what
was contracted for, in discharge of the whole
debt.
• Eg – A owes to B Rs. 5000. A pays to B Rs.
2000, in satisfaction of the whole debt of Rs.
5000. The entire debt is discharged.
• Waiver - Waiver takes place when parties to
the contract agree that they shall no longer
be bound by the contract.
• Consideration is not necessary for waiver.
• Merger – It takes place when an inferior right
accruing to a party under the contract
merges into a superior right accruing to the
same party under the same or some other
contract.
• Eg – P holds a property under a lease. He later
buys the property. His rights as lessee merge
into his rights as an owner.
 By Lapse of Time
• The Limitation Act lays down that in case of
breach of a contract legal action should be taken
within specified time which is called as the
period of limitation, otherwise the promisee is
debarred/ not entertained from instituting a suit
in a court of law and the contract stands
discharged.
 Discharge by Operation of Law
➢ Death of a person – When Contract is personal
in nature, the death of promisor discharges the
contract. In other impersonal contracts rights
and liabilities of the deceased person pass on to
the legal representatives of the dead person.
• Eg – A promised to draw a painting for B, A died
before drawing the painting, here the contract
stands discharged after the A’s death as this
contract is personal in nature. His
representatives do not have the skill to draw like
him.
➢ Insolvency – Contract stands discharged by
insolvency of any one party, the court passes
order of discharge.
➢ Unauthorised Material Alteration – Any
alteration made by any party without the
consent of other party, then the contract will
stand discharged.
 Discharge by Breach of Contract
• Breach of contract means breaking of the
obligation which a contract imposes.
• It occurs when a party to the 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 a right if action for damages on the
injured party/aggrieved party.
 Actual Breach of Contract
• At time when performance is due. Eg – A
agrees to deliver B 5 bags of wheat on 1st
January, A does not deliver the same on the
same day, there is breach of contract.
• During performance of the contract. Eg – C
contracted with a railway company to supply it
3000 tons of railway chairs at a certain price,
to be delivered in installments. After 1787
tons had been supplied, the railway company
asked C not to deliver any more. C could bring
an action for breach of contract.
 Anticipatory breach of contract
It occurs when a party to an executory contract
declares his intention of not performing the
contract before the performance is due.
It may be done either by –
1) Expressly renouncing his obligation under the
contract. Eg – Amar undertakes to supply 100
TV sets to Raj on 1st March. Before this date
he informs Raj that he is not going to supply
the goods. This is anticipatory breach of
contract by express repudiation.
Conti….
2) By doing some act so that the performance of
his promise becomes impossible.
Eg – Baban promised to assign to Ravi , within 7
years from the date of his promise, all his
interest in a lease for the sum of Rs 10 lakhs.
Before the end of 7 years he assigned his
interest to another person. It was an
anticipatory breach by implied repudiation.
 Remedies for Breach of Contract
1. Rescission
2. Damages
➢ Ordinary damages
➢ Special damages
➢ Exemplary damages
➢ Nominal damages
➢ Mitigation of damages
➢ Liquidated damages / penalty
➢ Payment of interest
3. Quantum Meruit – As much as earned.
Where a contract is partly performed by one
party has became discharged by the breach
of contract by the other party. The right is
exercised for what the party has performed
and not the entire contract.
4. Specific performance – Where damages are
not adequate remedy, the injured party can
ask for Specific Performance. It may be at
the discretion of the court.
5. Injunction
6. Rectification or Cancellation
Questions???