Discharge of Contracts under Indian Contract Act

SUBMITTED BY – NITUL BORAH

UID – SM0121036
2nd ASSIGNMENT & 1st year
General Law of Contract
FACULTY IN-CHARGE – Monmi Gohain
Discharge of Contracts under Indian Contract Act,
1872

Meaning
Any contract is entered into between two parties for the subsequent fulfilment of
the terms of the contract by the contracting parties. Any contract is only said to
be discharged when the rights and obligations created by such agreement cease
to exist.However, such cessation of contracts between two parties can occur in
more than a single obvious manner. Therefore, we have discussed the various
modes, as to how a contract can be discharged under the Indian Contract Act,
1872.

Modes of Discharge of Contract

When an agreement that was binding on the party to it ceases or stops to bind
them, the contract is said to be discharged. There are several ways of discharging a
contract. They are discussed as below-

1. Discharge by Performance:
Each party to contract will undoubtedly play out his piece of the commitment.
After the party have made due execution of the agreement, their responsibility
under the agreement concludes. The contract is deemed to be discharged by
performance. Concerning such discharged contract, there cannot be any dispute.

2. Discharge by Breach of Contract:

When a party having a duty to perform a contract, fails does that or does an act
whereby the performance of the agreement by him becomes unimaginable, or he
won't play out the agreement, there is supposed to be a breach of contract on his
part. When one party commits a breach of contract, the other party is discharged
from his obligation to perform under the contract.
Classification of Breach of Contract-
Actual i.e. the non-performance of the contract on the due date of performance.
Anticipatory i.e. before the due date of performance has come.

 Anticipatory Breach of Contract

This is covered under Section 39 of the Indian Contract Act, 1872. It implies the
repudiation of a contract by one party before the due date of his performance has
arrived.
When the refusal to perform the contract in its entirety is not there, it is not be
considered a case of anticipatory breach under Section 39.

Effects of anticipatory breach of contract

When the promisor has made an anticipatory breach of contract, “ the promise
may put an end to the agreement, except if he has signified by words or direct his
quiet submission, in its continuation."
It means that on the anticipatory breach of contract by one party, the other party
has two alternatives open to him:-
The other party may rescind the contract i.e. he has the right to treat the contract
as if it has come to an end, even though the due date of performance has not yet
arrived.
Anticipatory breach by one party does not automatically put an end to the
contract. On anticipatory breach by one party, the other party can exercise either
treat that the contract has come to an end or treat the contract as if it is still alive
and continuing until the due date of performance comes

CASE LAW: Frost v. Knight

In this case, the plaintiff was promised by the defendant, of marriage upon the
death of the defendant's father. However, before the death of the father, the
defendant broke off the engagement. The plaintiff sued the defendant, before
the death of the defendant's father on breach of contract and was successful.
3. Discharge by Impossibility of Performance:

Section 56 of the Contract Act provides for Discharge of Contract by

Impossibility of Performance. If the performance of a contract is impossible, the
same is considered void, in both England and India.

Initial Impossibility under Section 56(1)

An agreement to do an inconceivable demonstration is in itself void. Performance

of the respective promises by parties is the most essential aspect of any
agreement.
If a contract is impossible to be performed, the parties to it will never be able to
fulfil their objective and hence such agreement is void.

Section 56 is based on the maxim-les non-cogit ad impossibilia which means that

the law does not compel a man to do something that he cannot possibly perform.

Subsequent Impossibility under Section 56(2)

Upon entering the contract, the performance of the terms of such contract may
be reasonable and can be performed. However, the occurrence of certain events
or circumstances can later render it impossible for any one of the parties to fulfil
their part of the contract. Thus, in the event, when the performance of the
contract becomes impossible, the contract is void.

Case law:
In Punj Sons Pvt. Ltd. v. Union of India, the plaintiff's company (Punj) in New
Delhi entered into a contract with Union of India for the supply of 8,420 milk
containers of 20 litres each duty coated with “hot-dip coating”.
The parties were aware of the fact that such coating is composed of tin ingots, a
controlled item, that was not available in the market without a release order from
the Director-General of Supplies and Disposals. Despite reasonable efforts on part
of the petitioners to obtain the release of the necessary quota of tin ingots, the
same was not done.
It was held that the performance of the contract became void due to impossibility
of performance furthermore; the promisors couldn't be made at risk to pay harm
for the breach of contract.

4. Discharge by Agreement and Novation:

Section 62 of the Contract Act provides for the discharge of contract by

agreement and novation. Novation refers to the addition of a new contract in
substitution of the existing contract.
When by an agreement between the parties to a contract, a new contract
replaces an existing one, the already existing one is thereby discharged and its
place, the obligation of the parties in respect in respect of the new contract
comes into existence.

Novation is of two kinds:-

Novation by a change in the terms of the contract:-

Novation in the change of terms may imply that the parties to the contract have
changed the terms to the contract, either by adding new terms to the contract or
by extinguishing the terms of the existing contract.

In Salima Jabeen v. National Insurance Co. Ltd., the appealing party went into an
agreement of protection of her property against fire with the respondent
company.
After assessment of the damaged property and deliberation with the plaintiff, a
compensation amount was decided and later paid to the plaintiff by the
defendant company.

Upon acceptance of such compensation and refusing to make further claims, the
plaintiff forfeited her right of further claims and released the defendant company
from further obligations.
The terms and conditions of an agreement can unquestionably be changed or
adjusted. However, it cannot be done unilaterally unless there exists any
provision either in the contract itself or in law.

Change in the parties to the Contract:-

Novation of a contract by changing the parties to the contract is another way

whereby one of the parties to the contract is replaced by another, to fulfil the
terms of the existing contract.

In Satish Chandra Jain v. National Small Industries Corporation, the appellant

stood guarantor to funding done to his proprietory business venture. In this
manner, the child changed over his business into a private company. It was held
that because of resulting changes, which added up to novation, the appealing
party's assurance stood released.

CONCLUSION
In conclusion of the matters discussed above, we have come to understand that
performance of a contract by parties to the contract, is not the only way of
discharging a contract. The contract may also be discharged by breach of the
contract or impossibility of performance or other modes as was discussed above.