Discharge of Contracts

The term discharge of contract means ending of the contractual relationship

between the parties.
• A contract is said to have been discharged when it ceases to operate i.e.
when the rights and obligations created by the parties came to an end.
Various Modes of Discharge of Contract
• A contract is said to be discharged using the following methods:
• Discharge by Performance
• Discharge by Agreement or Consent
• Discharge by Impossibility of Performance
• Discharge by Lapse of Time
• Discharge by Operation of Law
• Discharge by Breach of Contract
Discharge by Performance

• Performing means doing all those things which are required by a contract.
• Discharge of performance occurs when the parties to the contract fulfill
their obligations set out under the contract within the specified time and
in the manner prescribed. In such a case, parties are discharged and
contracts come to an end. Discharge of Performance may be:
• Actual Performance
• Attempted Performance
Discharge by Agreement or Consent
• A Contract may discharged by mutual agreement of the concerned
parties.
• If all parties to a contract mutually agree to replace the contract with a
new one or annul or remit or alter it, then it leads to a discharge of the
original contract due to a mutual agreement.
• And the following are the important methods for the discharge of a
contract by a fresh contract
1. Novation
• The term novation means the substitution of the new contract by the
original one. The new agreement may be with the same parties or with the
new parties.
2. Alteration
• This refers to change in one or more terms of a contract with the consent
of all the parties entered in the contract. Alteration leads to formation of
new contracts but the parties to it remain the same.

3. Remission
This means the acceptance by the promisee of a lesser sum than what was
mentioned in the contract, or a lesser fulfillment of the promise made.
According to the section 63, every promise may:
 • May remit or give up with it;
• Extend the performance time;
• Accept any other satisfaction rather than performance.
4. Recession
• The term recession refers to cancellation of all or some of the material
terms of the contract. If the parties entered into the contract, mutually
agreed to do so, then in such case the respective contractual agreement of
the parties gets terminated.
5. Waiver
• The term waiver means abandonment of rights. When one party
deliberately abandons his right under the contract, the other party is
released of his obligations, else binding upon it.

3] Discharge by the Impossibility of Performance

If it is impossible for any of the parties to the contract to perform their
obligations, then the impossibility of performance leads to a discharge of the
contract. If the impossibility exists from the start, then it is impossibility ab-
initio. However, the impossibility might also arise later due to:
• An unforeseen change in the law;
• Destruction of the subject-matter essential to the performance;
• The non-existence or non-occurrence of a particular state of things which
was considered a given for the performance of the contract;
• A declaration of war.
4, Discharge of Contract by a Lapse of a Time
A contract is discharged by lapse of time. Lapse of time terminates a
contract. According to The Limitation Act, 1963, there is a specific time period
for the performance of a contract. If the promisor failed to perform his duties
and the promisee failed to take action within this specified period, then the
promisee in such a case cannot be deprived of his remedy through law.

5. Discharge of Contract By Operation of Law

A contract can be discharged by the operation of law in the following
circumstance:
 Unauthorized Material Alteration of Written Document: A party can
discharge the contract i.e from his side if the other party changes the
terms such as price or quantity of contract without taking any permission
from the former.
 By death
 By Insolvency
6. Discharge by Breach of Contract
Breech of Contract means the failure of a party to perform his obligations. A
contract is obliged to perform according to its terms. But when a promisor fails
to perform a contract according to the terms of the contract, then he is said to
have committed a breach of contract. The breach of contract is of two types
• Actual Breach
• Anticipated Breach
Actual Breach:
Actual breach of contract refers to failure to perform the obligation when
the performance is due.
• For example, if a seller fails to deliver the goods by the appointed time, or
the goods are delivered but not upto the mark in terms of quality or
quantity specified in the contract.
Anticipatory Breach:
Anticipatory Breach, also known as Breach by Contradiction, takes place
when one party before the arrival of the fixed date for performance states
that it cannot or will not able to perform material part of the contractual
obligation on the specified date or it aims to perform the contract in a way
that is inconsistent with the deeds specified in the contract at the initiation.

REMEDIES FOR BREACH OF CONTRACT

A remedy is the means given by law for the enforcement of a right A right accruing to a
party under a contract would be of no value if there were no remedy to enforce that right in a
Law Court in the event of its infringement or breach of contract. A contract gives rise to
correlative rights and obligations.

When a contract is broken, the injured party (i.e., the party who is not in breach) has one or
more of the following remedies:

1. Rescission of the contract

2. Suit for damages

3. Suit upon quantum meruit

4. Suit for specific performance of the contract

5. Suit for injunction.

I. RESCISSION

The term Rescission refers to the cancellation of contract . When a contract is broken
by one party, the other party may sue to treat the contract as rescinded and refuse further
performance. In such a case, he is absolved of all his obligations under the contract.
Example : ‘A’ promises B to supply 10 bags of cement on a certain day. ‘B’ agrees to pay the
price after the receipt of the goods. ‘A’ does not supply the goods. ‘B’ is discharged from
liability to pay the price.

The court may grant rescission – (a) Where the contract is voidable by the plaintiff; or
(b) Where the contract is unlawful for causes not apparent on its face and the defendant is
more to blame than the plaintiff.

II. DAMAGES

Damages are a monetary compensation allowed to the injured party by the Court for the
loss or injury suffered by him by the breach of a contract. The object of awarding damages for
the breach of a contract is to put the injured party in the same position, so far as money can do it,
as if he had not been injured, i.e., in the position in which he would have been had there been
performance and not breach. This is called doctrine of restitution (restitution in integrum). The
fundamental basis of awarding damages is compensation for the pecuniary loss which naturally
flows from the breach. The rules relating to damages may now be considered:

1. Damages arising naturally-ordinary damages

When a contract has been broken, the injured party can recover from the other party such
damages as naturally and directly arose in the usual course of things from the breach. This
means that the damages must be the proximate consequence of the breach of contract. These
damages are known as ordinary damages.

Examples. (a) A contracts to sell and deliver 50 quintals of Farm Wheat to B at Rs. 775 per
quintal, the price to be paid at the time of delivery. The price of wheat rises to Rs. 800 per
quintal and A refuses to sell the wheat. B can claim damages at the rate of Rs. 25 per quintal.

2. Damages in contemplation of the parties-special damages

Damages other than those arising from the breach of a contract may be recovered if such ages
may reasonably be supposed to have been in the contemplation of both the parties as the
probable result of the breach of the contract. Such damages, known as special damages,
cannot be ed as a matter of right. These can be claimed only if the special circumstances
which would in a special loss in case of breach of a contract, are brought to the notice of the
other party.

3. Vindictive or exemplary damages

Damages for the breach of a contract are given by way of compensation for loss suffered, and
not by way of punishment for wrong inflicted. Hence, 'vindictive' or 'exemplary' damages
have no place in the law of contract because they are punitive (involving punishment) by
nature. But in case

4. Nominal damages

Where the injured party has not in fact suffered any loss by reason of the breach of a contract,
the damages recoverable by him are nominal, I.e., very small, for example, a rupee. These
damages merely acknowledge that the plaintiff has proved his case and won.

Example. A firm consisting of four partners employed B for a period of two years. After six
months two partners retired, the business being carried on by the other two. B declined to be
employed under the continuing partners. Held, he was only entitled to nominal damages as he
had suffered no loss [Brace v. Calder, (1895) 2 Q.B. 253].

5. Damages for loss of reputation

Damages for loss of reputation in case of breach of a contract are generally not recoverable.
An exception to this rule exists in the case of a banker who wrongfully refuses to honour a
customer's cheque. If the customer happens to be a tradesman, he can recover damages in
respect of any loss to his trade reputation by the breach. And the rule of law is: "the smaller
the amount of the cheque dishonoured, the larger the amount of damages awarded." But if the
customer is not a tradesman, he can recover only nominal damages.

6. Damages for inconvenience and discomfort

Damages can be recovered for physical inconvenience and discomfort. The general rule in
this connection is that the measure of damages is not affected by the motive or the manner of
the breach
7. Mitigation of damages
It is the duty of the injured party to take all reasonable steps to mitigate the loss caused by the
breach. He cannot claim to be compensated by the party in default of loss which he ought
reasonably to have avoided.
8. Difficulty of assessment
Although damages which are incapable of assessment cannot be recovered, the fact that they
difficult to assess with certainty or precision does not prevent the aggrieved party from vering
them. The Court must do its best to estimate the loss and a contingency may be taken
account.

Example. H advertised a beauty competition by which readers of certain newspapers were to

select fifty ladies. He himself was to select twelve out of these fifty. The selected twelve were
to be provided theatrical engagements. C was one of the fifty and by H's breach of contract
she was not present when the final selection was made. Held, C was entitled to damages
although it as difficult to assess them [Chaplin v. Hicks. (1911) 2 K.B. 786].

9. Cost of decree
The aggrieved party is entitled, in addition to damages, to get the cost of getting the decree
for mages. The cost of suit for damages is in the discretion of the Court.

10. Damages agreed upon in advance in case of breach

If a sum is named in a contract as the amount to be paid in case of its breach, or if the
contract contains any other stipulation by way of a penalty for failure to perform the
obligations, the aggrieved party is entitled to receive from the party who has broken the
contract, a reasonable compensation not exceeding the amount so named (Sec. 74).
III QUANTUM MERUIT
It means “AS MUCH AS EARNED” A right to sue on a quantum meruit arises where
a contract, partly performed by one party, has become discharged by the breach of the
contract by the other party. The right is founded not on the original contract which is
discharged or is void but on an implied promise by the other party to pay for what has been
done.
IV SPECIFIC PERFORMANCE
In certain cases, damages are not an adequate remedy. The court may, in such cases,
direct the party in breach to carry out his promise according to the terms of the contract. This
is a direction by the court for Specific Performance of the contract at the suit of the party not
in breach.
V INJUNCTION
Where a party is in breach of a negative term of a contract, the court may , by issuing
an order, restrain him from doing what he promised not to do. Such an order of the court is
known as an “Injunction”.
Case: LUMLEY VS WAGNER W agreed to sing at L’s theatre, and during a certain period
to sing nowhere else. Afterwards W made contract with Z to sing at another theatre and
refused to perform the contract with L. Held, W could be restrained by injunction from
singing for Z.