Discharge of Contract

A contract is said to be discharged or terminated when the rights and obligations created by it are terminated.

The following are the various modes in which a contract may be discharged:

Discharge by agreementDischarge by operation of lawDischarge by breachDischarge by performanceDischarge by impossibilityDischarge by lapse of time

Discharge by Agreement:A contract is created by the parties to it.

Similarily, it can also come to an end by their mutual agreement.

The rights and obligations created by an agreement can be discharged without their performance by means of another agreement between the parties which provides for the termination of the of the earlier rights and obligations.

The parties may agree to terminate the existence of the contract by any of the following ways:-

1) Novation:- (the replacement of one obligation by another by mutual agreement of both parties)

It means that there being a contract in existence some new contract is substituted for it, either between the same parties or between different parties.

Novation may occur in two ways:1) New parties substituted for the old one.2) Parties may substitute new contract for the old one.

Eg. A owes money to B under a contract. It is agreed between A, B and C that B shall accept C as his debtor instead of A. The old debt of A to B is at an end and a new debt from C to B has been contracted.

Essentials of novation:-Novation occurs with the consent of all

the parties.The new contract must be one which is

capable of being enforced at law.The agreement to substitute the new

contract for the old must be made before the expiry of the time of the performance of the original contract.

2)Alteration:-It means a change in one or more of the terms of a contract.

Alteration is valid if it is done with the consent of all the parties to the contract.

In alteration, unlike novation, there is change in the terms of the contract but no change of the parties.

Alteration made with the consent of all the parties results in the discharge of the original contract.

Eg. A enters into a contract with B for the supply of a 1000 kg of wheat at his warehouse on 1st July 1980. Later both A and B agree to postpone the date of delivery to 1st Sept.1980. This change amounts to alteration of the contract.

3) Rescission:- (cancellation of a contract)If the parties to a contract agree to rescind it , the

original contract need not be performed.

4) Remission:-It means acceptance of lesser amount or

lesser degree of performance than what was actually due under the contract.

It is unilateral act of the promisee discharging at his will and pleasure of the obligation of another.

Eg. A owed large sums of money to B. C offered to pay lesser sum in satisfaction of B’s claim on A. B accepted it. It was held that the acceptance was in full satisfaction and B can’t claim balance from A after receiving payment in full satisfaction.{kapur chand v. Himayat Ali khan }

Discharge by PerformancePerformance of a contract is one of the most

usual ways of discharge of a contract. The performance of a contract lies in doing or causing to be done what the promisor has promised to do.

On the performance of the obligation undertaken by the parties, the contract is automatically discharged.

Discharge by Operation of LawInsolvency: Upon insolvency, the rights and

liabilities of the insolvent are, with certain exceptions transferred to an officer of the court , known as official assignee .Hence insolvent person is discharged from all his previous liabilities.

Merger : When an inferior right contract is merged into superior right contract, the former is discharged automatically.

Eg. When a part time employee is made full time , the contract of part-time employment is discharged by merger.

Alteration:-An alteration of a written contract made

without the consent of the other party has the effect of discharging the contract provided the alteration is of a material part.

Death:-Where performance of a contract is

required to be made in person and the personal qualifications of the promisor are the considerations for the contract, the death of the promisor discharges the contract.

In other contracts, the rights and liabilities of a such person pass to his legal representatives.

Discharge by BreachParties to a contract are expected to perform

their respective obligations. If any party fails to perform his obligation, there takes place a breach of contract.

The breach of contract may be:Actual orAnticipatory

Actual Breach:-a) Breach of contract when performance is actually due:-

When a person does not perform his part of the contract at the time it is due, he will be liable for its breach.

b) Breach during the performance of the contract:-where a party to a contract performs his part of the

contract, but the other party alleges that it is not a proper performance, according to the terms of the contract.

Anticipatory Breach of Contract:A refusal by the promisor to perform his part of the

contract , before the due date of performance is known as anticipatory breach of contract. It is a breach of contract occurring before the time fixed for performance has arrived either by the promisor refusing to perform his promise or by disabling himself from performing his promise.

Discharge by impossibility of PerformanceImpossibility of performance results in the

discharge of the contract. Agreements which are impossible in itself are void because law does not compel the impossible.

Thus, a promise by A that he will raise a mango tree in one hour in B’s garden by the use of mantras is void.

Remedies for Breach of Contract

Parties to a lawful contract are bound to perform their respective obligations. But when one of the parties refuse to perform his obligations , he is said to have committed a breach of the contract.

In case of breach of contract, the law provides the following remedies to an injured party:

1) Cancellation or Rescission2) Restitution3) Specific performance4) Injunction5) Quantum Meruit6) Damages

Cancellation or Rescission:Rescission is the revocation of a contract. It is the way

by which a contract may be discharged. Where one of the parties to a contract commits breach, the other party may treat the contract as rescinded. He is free from all the obligations under the contract.

Under Section 64, the party rescinding a voidable contract shall, if he has received any benefit from another party , restore such benefits to that person from whom it was received.

Eg.A singer contracts with B, the manager of theatre to sing at

his theatre for two nights in every week during the next two months and B promises to pay him Rs.100 for each night performance. On the sixth night A wilfully absents himself from the theatre and B in consequence rescinds the contract. B is entitled to claim compensation for the damage which he has sustained through the non-fulfilment of the contract.

Restitution:It means return of the benefit received by one party to

the contract from the other party under a void contract.

When a contract becomes void it need not be performed by either party.

Section 65 provides that when an agreement is discovered to be void or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it or to make compensation for it.

Eg.A pays B Rs.1000 in consideration of B’s promising to

marry C, (A’s daughter). C is dead at the time of promise. The agreement is void (impossibility of performance) but B must repay A Rs. 1000.

Specific Performance:Under certain circumstances a person aggrieved by

the breach of the contract can file a suit for specific performance, i.e., for an order by the court upon the party guilty directing him to perform what he promised to do.

Specific performance is allowed only in a limited number of cases.

Some of the cases in which specific performance of the contract may be enforced are:

Where monetary consideration is not an adequate remedy for the breach of a contract.

When there exists no standard for ascertaining the actual damage caused.

Injunction: