DISCHARGE OF CONTRACT

INDIAN CONTRACT ACT,1872

 MEANING OF DISCHARGE OF
CONTRACT
• Discharge of a contract means discontinuation
of the contractual relations between the
parties.

• When the rights and obligations arising out of

a contract are extinguished, the contract is
said to be discharged or terminated.
 MODES OF DISCHARGE
• Discharge by performance.
• Discharge by agreement or consent.
• Discharge by impossibility.
• Discharge by lapse of time.
• Discharge by operation of law.
• Discharge by breach of contract.
 DISCHARGE BY PERFORMANCE
• Takes place when the parties to the contract
fulfill their obligations arising under the
contract within the time and in the manner
prescribed.
The performance may be:
Actual performance
Example: If A agreed to supply 20 bags of rice to
D, A must have actually supplied the entire 20
bags of rice. Then only it can be stated that the
contract has actually been performed. As soon as
A supplied the 20 bags of rice to B the contract
stands discharged. It is discharged because of
performance.
Attempted performance or Tender
• When the promisor actually offers to perform his
part of the contract, but the other party refuses
to accept the performance, then attempted
performance or tender is equal to actual
performance except in case of money.
• In such a case, the promisor is discharged from
the responsibility of non-performance of the
contract.
• The promisor need not perform his part of
contract subsequently.
 DISCHARGE BY AGREEMENT OR
CONSENT
• A contract rests on the agreement of the
parties. As it is agreement which binds them,
so by their agreement or consent they may be
discharged.

• The discharge by consent may be express or

implied.

• Discharge by implied consent takes place by :

 NOVATION
• Novation, i.e., when a new contract is substituted for
an existing one, either between the same parties or
between the new parties.
• Example: A owes Rs.5000 to B. It is agreed between
A,B and C that henceforth C will repay the amount of
Rs.5000 to B. In this case, the contractual relationship
between A and B disappears and a new contract
between A and C is substituted in the place of existing
one between A and B. Thus, by substituting a new
contract between A and C, the old contract between
A and B is discharged by Novation.
 ALTERATION
• Alteration, i.e., when one or more of the terms of the
contract is/are altered by the mutual consent of the
parties to the contract.
• Example: X enters into a contract with Y for supply
of 100 bags of sugar by the first of the next month.
Subsequently, both X and Y alter the terms of the
contract and thereby X and Y agree that X should
supply 50 bags of sugar instead of 100 bags on the
10th of the next month. In such a case, the old
contract is discharged.
 RESCISSION
• Rescission, i.e., when all or some of the terms
of the contract are cancelled. (S.64)
• Example: X agrees to supply Y certain
luxurious goods within six months. By that
time the said goods go out of fashion. Both X
and Y agree to cancel the contract. By such
cancellation the contract between X and Y is
discharged.
 REMISSION
• Remission, i.e., acceptance of a lesser
fulfillment of the promise made. It is a
unilateral act of the promisee discharging at
his will and pleasure the obligation of another.
• Example: X owes Rs.500 to Y. Y agrees to
accept a lesser sum namely, Rs.400 instead of
Rs.500. As soon as Rs.400 is paid by X, the
whole debt of Rs.500 is discharged.
 WAIVER
• Waiver, i.e., intentional relinquishment or giving
up of a right by a party entitled thereto under a
contract.
• Example: A agrees to supply B 10 bags of rice. B
in return agrees to supply A 10 bags of wheat.
Subsequently, both A and B agree to abandon
their respective rights. Accordingly, A need not
supply rice to B. Likewise, B need not supply
wheat to A. Now the contract is discharged.
 MERGER
• Merger, i.e., when an inferior right accruing to a
party under a contract merges into a superior right
accruing to the same party under a new contract.
• Example: Y is a owner of a house in which X is
residing as a tenant. Subsequently, X buys the
property from Y. In such a case X’s lesser rights as
lessee will be merged into his superior rights as
owner. In other words X, the tenant now becomes
the owner of the property. Hence, the lease
agreement between X and Y stands automatically
discharged.
 DISCHARGE BY IMPOSSIBILITY
• Impossibility of performance of performance may be –

– Initial impossibility- An agreement to do an act impossible in

itself is void.
Example: X agrees to sell his car to Y, but unknown to both the
parties, the car had already been destroyed by fire even at the
time of entering the contract. The contract is void due to
bilateral mistake.
– Supervening impossibility- Impossibility which arises
subsequent to the formation of a contact (which could be
performed at the time when the contract was entered into) is
called subsequent or supervening impossibility. In such a case
the contract becomes void.
Example: X agrees to sell his car to Y and deliver it on January
20th . Just before the day fixed for delivery on January 19th the
car is destroyed by fire. The supervening factor renders the
contract impossible. So, the contract is void.
THE CASES COVERED BY SUPERVENING
IMPOSSIBILITY
(CONTRACT DISCHARGED)
DESTRUCTION OF SUBJECT-MATTER OF
CONTRACT

Example: C let a music hall to T for a series of

concerts on certain days. The hall was
accidently burnt down before the date of the
first concert. Held, the contract is void.
[Taylor v. Caldwell]
NON-EXISTENCE OR NON-OCCURRENCE
OF A PARTICULAR STATE OF THINGS

Example: X hired a flat near Kaloor from Y on

April 20-21, 2011 for witnessing IPL match at
Jawaharlal Nehru Stadium, Kochi. Y knew of X’s
purpose. Due to security reasons the match is
cancelled. X is excused from paying the rent for
the flat on the ground that existence of IPL
match was the basis of the contract. Its
cancellation discharged the contract.
 DEATH OR INCAPACITY FOR PERSONAL
SERVICE
• Example: An artist undertook to perform at a
concert for a certain price. Before she could
do so, she was taken seriously ill. Held, she
was discharged due to illness.[Robinson v.
Davison]
 CHANGE OF LAW OR STEPPING IN OF A
PERSON WITH STATUTORY AUTHORITY
• Example: A agreed to transport goods of B
from place X to place Y. Subsequent to the
formation of the contract, the trucks of A
were requisitioned by the Government under
a statutory power. Held, the contract was
discharged. [Noor Bux v. Kalyan]
 OUTBREAK OF WAR

• Example: A contracts to take in cargo for B at

a foreign port. A’s government afterwards
declares a war against the country in which
the port is situated. The contract becomes
void when war is declared.
CASES NOT COVERED BY SUPERVENING
IMPOSSIBILITY: NOT AN EXCUSE
(CONTRACT NOT DISCHARGED)
 DIFFICULTY OF PERFORMANCE

Example: X agreed to supply coal within a

specified time. He failed to supply in time
because of government’s restriction on
transport of coal from collieries. Here X will
not be discharged because the coal was
available in the open market from where X
could have obtained it.
 COMMERCIAL IMPOSSIBILITY

Example: X, a furniture manufacturer agreed

to supply certain furniture to Y at an agreed
rate. Afterwards, there was a sharp increase
in the rates of the timber and rates of wages.
Since, it was no longer profitable to supply at
the agreed rate, X did not supply. X will not
be discharged on the ground of commercial
impossibility.
FAILURE OF THIRD PERSON ON WHOSE
WORK THE PROMISOR RELIED
Example: X entered into a contract with Y for
the sale of goods to be manufactured by Z, a
manufacturer of those goods. Z did not
manufacture those goods. X will not be
discharged and will be liable to Y for
damages.
 STRIKES, LOCK-OUTS AND CIVIL
DISTURBANCES
• Example: X agreed to supply to Y certain
goods to be imported from Algeria. The
goods could not be imported due to riots in
that country. It was held that this was no
excuse for non-performance of the contract.
[Jacobs v. Credit Lyonnais].
 FAILURE OF ONE OF THE OBJECTS

• Example: X agreed to let a boat to H.

i. To view the naval review on the occasion of
induction ceremony of INS Vikrant into the Indian
Navy.
ii. To cruise round the fleet.
• Due to technical reasons the navy review was
cancelled but the fleet was assembled and the
boat could have been used to cruise round the
fleet.
• The contract was not discharged.
 DISCHARGE BY LAPSE OF TIME
• If a contract is not performed within the period of
limitation and if no action is taken by the promisee in a
law court, the contract is discharged.
• Example: On 1st July , 2001, X sold goods to Y for
Rs.1,00,000 and Y has made no payment till August
2004. Legal position as on 1st August, 2004:
i. If no credit period was allowed – The contract is
discharged by lapse of time (i.e., 3 years) from 1st July
2001 because the debt has become time barred and,
hence, X cannot exercise his right to recover this debt.
ii. If 2 months credit period was allowed – The contract is
not discharged by lapse of time because the period of
limitation is yet to expire on 31st Aug.2004 (i.e., 3 years
from the expiry of the credit period).
 DISCHARGE BY OPERATION OF LAW
This includes:
• Death
• Merger
• Insolvency
• Unauthorized alteration of the terms of a
written agreement.
• Rights and liabilities becoming vested in the
same person.
 DISCHARGE BY BREACH OF
CONTRACT
• If a party breaks his obligation which the contact
imposes, there takes place breach of contract.
• Breach of contract may be –
– Actual breach of contract – May occur:
 At the time of when the performance is due.
 During the performance of the contract.
– Anticipatory breach of contract – occurs when a
party repudiates his liability or obligation under the
contract before the time for performance arrives.
 CASE ANALYSIS 1
• In July,1987,Radhey Shyam entered into a
contract with Raja Ram to build 10 houses for a
fixed sum of Rs. 10,00,000. Owing to unexpected
shortage of skilled labour and of certain
materials, the contract took 24 months to
complete instead of the 12 months expected and
cost about Rs.12,50,000. Radhey Shyam
contended that the contract had been frustrated
and that he was entitled for the cost actually
incurred.
• Advice Raja Ram.