Discharge of Contract

Grounds
• By performance
• By impossibility of performance/ frustration
• By mutual consent/ agreement
• By breach of contract
• By operation of law
 Circumstances in which contracts
need not be performed:
• Work under a contract need not be performed in any of the
following circumstances:
• (a) In case one party to the contract absolves the other party from
fulfilling the obligations according to the contract; (By waiver)
• (b) In case a voidable contract is made void by the party concerned;
• (c) In case one can not execute /perform the contract due to the
breach by the other party;
• (d) In case the contract need not to be performed under any
provision of this Act;
• (d) In case contract need not to be performed due to: [under
Section 79]

• Illegality
• war, floods landslides, fire, earthquakes, and volcanic eruptions
• Destruction of subject matter
• Death or lose of sense as contract depends on personal skill,
knowledge
 Execution of contract in fundamental
change: Section 79
• In case it becomes impossible to execute a
contract as a result of fundamental changes in
the situation prevailing at the time of signing
of the contract, the work under the contract
need not be performed.
• Fundamental changes is also known as
supervening impossibility or frustration of
contract.
 Types of fundamental change or
immposibility
• Initial impossibility: As agreement to do an act
imposible init self is void.
• For example: an agreement to discover a treasure
by magic, being impossible of performance is
void.
• Subsequent impossibility:
• Some time performance of contract is quite
possible when it is made by the parties. But some
event subsequently happens which renders its
performance impossible or unlawful. In either
case contract is void. Frustration of contract
 Doctrine of Supervening Impossibility of
Contract/ Frustration of contract/ fundamental
change in the contract
• Subsequent illegality:
• A subsequent change in Law may render the
contract illegal and in that case the contract is
supposed to be discharged in need not to be
performed.
• (a) In case the contract becomes illegal and it
can not be executed; [79(a)]
 Change in Circumstances:-

• A contract will frustrate "where circumstances

arise which make the performance of the
contract impossible in the manner and at the
time contemplated".
• In case it becomes impossible to execute the
contract due to emergence of such situations
as war, floods landslides, fire, earthquakes,
and volcanic eruptions, which are beyond the
control of human beings;. [79(b)]
 J. C. Steamship Line Ltd V Imperial
Smelting Corpn Ltd (1941) 2 All ER 165,
• A ship was chartered to load cargo but on the
day before she could have proceeded to her
berth, an explosion occurred in the auxiliary
boiler, which made it impossible for her to
undertake the voyage at the scheduled time.
• Held: the House of Lords held that frustration
had, in fact, ooccurred in the circumstances.
 Destruction of subject-matter:-

• In case anything essential for executing the

contract is destroyed or damaged, or no
longer exists, or can not be obtained
 Taylor vs Caldwell(1963).
• When the subject matter of a contract,
subsequent to its formation, is destroyed
without any fault of the parties to the
contract, the contract is discharged.
• In this case, Taylor let a Music Hall to Caldwell
for concerts on certain days. The hall was
accidentally burnt down before the date of
the first concert.
• The contract considered to be discharged
 Death or incapacity for personal
service:
• Where the performance of a contract depends
on the personal skill or qualification of a party,
the contract is discharged on the illness or
incapacity or death of the party.
• For example, a singer undertook to perform at
a concert for certain price. Before he could do
so, he was taken seriously ill.
• Held, he was discharged due to illness.
• 79 (2) (d) of the Contract Act stipulates that if
the parties are entered into an agreement for
receiving personal capability, skill and
personal talence, in case of death, unsound
mind or the party physically and mentally
become unable to render such service the
contract will be discharged and need not to be
performed.
 Performance cannot be excused
[No fundamental change]
• In case it becomes difficult to perform the contract:
• Commercial impossibility: In case profit margin is low
or loss is expected:
• Higher profits is not realised or Raw material is
available at a higher price.
• Impossibility due to failure of third party: In case any
party to a contract is dependent upon any third party
who is not a party to the contract for performing the
contract, if the third party commits a mistake or
becomes unfit
• Strikes, lockout and civil disturbances.
• Additional tax ,fees or revenue to be paid
• (e) In case it becomes necessary to pay
additional tax, fee or other revenue;
• (f) In case the contract has been signed with
several objectives and only some of them can
not be fulfilled.
 Obligation after frustration
• The amount paid by one party to the other in
consideration of the contract before such a
change in the situation occurs shall be
refunded to the other party.
• Payment to be made or due from one party to
the other in consideration of the contract shall
not be made after such a change in the
situation.
• In case any party has performed any work or
paid any amount before such a change in the
situation, such work or amount shall be
calculated and the amount to be paid to each
other should be determined, and reasonable
expenses incurred by one party in
consideration of the contract may be
recovered from the other party.
 Facilities to be provided for
execution: 80
• The parties to a contract shall provide
facilities needed for executing the contract
from their respective sides.
• In case the contract can not be executed due
to failure of providing such facilities, the party
failing to execute the contract in that manner
shall not be held responsible
 Suspension of contract 81
• In case the parties to a contract agree, all or any
of the portions of the work to be performed
under the contract may be changed or amended,
the time-limit for performing any work under the
contract extended, the contract suspended by
not making it obligatory to perform any work to
be performed under the contract for some time,
the work mentioned in the contract may be
replaced by another work, or a new contract may
be signed as a replacement of the original
• contract.
 Consequences of amendment
• In case any change or amendment is made in
the original contract, a new contract shall be
deemed to have been signed, and the contract
shall become effective accordingly.
• In case a new contract is signed in this
manner, liability under the initial contract
need not be borne except when otherwise
provided for in the contract.