Discharge of a Contract: The Indian Contract Act Notes
Discharge of a contract means termination of contractual relation between the parties to a contract in other words a contract is discharged when the rights and obligations created by it are extinguished (i.e. comes to an end
Mode of discharge of contract Under Indian Contract Law
- By performance
- By mutual agreement(By implied consent)
- Novation – Sec 62
- Rescission – Sec 62
- Alteration – Sec 62
- Remission – Sec 63
- By Operation of law
- Unauthorized alteration
- By lapse of Time
- By breach of contract
- By impossibility of performance
Discharge by performance
Fulfillment of obligations by a party to the contract within the time and in the manner prescribed in the contract.
- Actual performance – no party remains liable under the contract. Both the parties performed.
- Attempted performance or tender.:- Promisor offers to perform his obligation under the contract but the promise refuses to accept the performance. It is called as attempted performance or tender of performance
- But the contract is not discharged.
Discharge by mutual agreement
- Novation [Sec 62] – Novation means substitution of a new contract in the place of the original contract new contract entered into in consideration of discharge of the old contract. The new contract may be.
- Between the same parties (by change in the terms and condition)
- Between different parties (the term and condition remains same or changed)
Following conditions are satisfied :-
- All the parties must consent to novation
- The novation must take place before the breach of original contract.
- The new contract must be valid and enforceable.
- A owes B Rs.50,000. A enters into an agreements with B and gives B a mortgage of his estate for Rs.40,000 in place of the debt of Rs.50,000. (Between same parties)
- A owes money Rs.50,000 to B under a contract. It is agreed between A, B & C that B shall henceforth accept C as his Debtor instead of A for the same amount. Old debt of A is discharged, and a new debt from C to B is contracted. (Among different parties)
- Rescission :- Rescission means cancellation of the contract by any party or all the parties to a contract. X promises Y to sell and deliver 100 bales of cotton on 1st oct his go down and Y promises to par for goods on 1st Nov. X does not supply the goods. Y may rescind the contract.
- Alteration  :- Alteration means a change in one or more of the terms of a contracts with mutual consent of parties the parties of new contracts remains the same.
Ex:- X Promises to sell and delivers 100 bales of cotton on 1st oct. and Y promises to pay for goods on 1st Nov. Afterwards X and Y mutually decide that the goods shall be delivered in five equal installments at is godown . Here original contract has been discharged and a new contract has come into effect.
Remission :- Remission means accepting a lesser consideration than agreed in the contract. No consideration is necessary for remission. Remission takes place when a Promisee-
- dispense with (wholly or part) the performance of a promise made to him.
- Extends the time for performance due by the promisors
- Accept a lesser sum instead of sum due under the contract
- Accept any other consideration that agreed in the contract
A promise to paint a pictured for B. B after words for him to do so. A is no longer bound to perform the promise.
- Waiver:- Intentional relinquishment of a night under the contract.
- Merger :– conversion of an inferior right into a superior right is called as merger. (Inferior right end)
|1. Meaning||It is substitution of an existing contract with new one.||It is alteration to some of the terms and conditions of the original Contract.|
|2. Change in parties||It is made by – (a) change in the terms of the contract or (b) change in the Contracting Parties.||Terms of the contract may be altered by mutual agreements by the same contracting parties. So, there is no change in the parties.|
|3. New Contract||A New Contract comes into existence in place of the old one.||It is not essential to substitute a new contract in place of the old contract.|
|4. Performance||Old contract need not be performed New contract must be performed.||Old contract as per the altered terms shall be performed.|
Discharge by operation of law
- Death :- involving the personal skill or ability, knowledge of the deceased party one discharged automatically. In other contract the rights and liability passed to legal represent. Example : A promises to perform a dance in B’s theatre. A dies. The contract comes to an end.
- Insolvency:– when a person is declared insolvent. He is discharged from his liability up to the date of insolvency.
Example: A contracts to sell 100 bags of sugar to B. Due to heavy loss by a major fire which leaves nothing to sell, A applies for insolvency and is adjudged insolvent. Contract is discharged.
- By unauthorized material alteration – without the approval of other party – comes to an end – nature of contract substance or legal effect.
Example : A agrees upon a Promissory Note to pay Rs.5,000 to B. B the amount as Rs.50,000. A is liable to pay only Rs.5,000.
- Merger: When an inferior right accruing to a party in a contract mergers into a superior right accruing to the same party, then the contract conferring inferior right is discharged.
Example: A took a land on lease from B. Subsequently, A purchases that land. A becomes owner of the land and ownership rights being superior to rights of a lessee, the earlier contract of lease stands terminated.
- Rights and liabilities vest in the same person: Where the rights and liabilities under a Contract vest in the same person, the contract is discharged.
Example: A Bill of Exchange which was accepted by A, reaches A’s hands after being negotiated and endorsed through 4 other parties. The contract is discharged.
Discharge by Lapse of time
Where a party fails to take action against the other party within the time prescribe under the limitation Act, 1963. All his rights to come end. Recover a debt – 3 Years recover an immovable property – 12 years
Ex.:- On 1st July 20X1 X sold goods to Y to Rs 1,00,000 and Y had made no payment till August 20X4. state the legal position on 1st Aug 20X4
- If no. credit period allowed
- If 2 month credit period allowed.
Discharge by Breach of contract
Failure of a party to perform his part of contract
- Anticipatory Breach of contract :- Anticipatory breach of contract occurs when the part declares his intention of not performing the contract before the performance is due .
- Express repudiation: – 5 agrees to supply B 100 tunes of specified category of iron on 15.01.2006 on 31.12.2005. 5 express his unwillingness to supply the iron to B.
- Party disables himself: – Implied by conduct.
Ex.:- 5 agrees to sell his fiat car to B on 15.01.2006 on 31.12.05 5 sells his fiat car to T.
- Actual Breach of contract :- If party fails or neglects or refuses to perform his obligation on the due date of performance or during performance. It is called as actual breach.
During performance – party has performed a part of the contact.
Cosequences of Breach of contract:- The aggrieved party (i.e. the party not at face it ) is discharged from his obligation and get rights to proceed against the party at fault. The various remedial available to an aggrieved party.
Discharge by Impossibility performance
- Effect of Initial Impossibility
- Effect of supervening. Impossibility
- Initial Impossibility – at the time of making contract
- Both parties know – put life into deed body – void .
- Both don’t know – void.
- One know – compensate to other party
- Effect of super vanity Impossibility:-
- Where an act becomes impossible after the contract is made – void
- Becomes unlawful, beyond the control of promisor – void
- Promisor alone knows about the Impossibility – compensate loss.
- When an agreement is discovered to be void or where a contract becomes void
Cases when a contract is discharged on the group of super vent Impossible
- Distraction of subject matter
- Failure of the ultimate purpose of contract – king coronate process.
- Death of personal Incapacity
- Declaration of war
- change of Law
- Non existence or Non occurrence of a particular state of thing necessary for performance.
No Super Impossibility – does not become void
- Difficulty of performance – coal – transport
- Commercial Impossibility
- Default of a third party
- Strikes, knockout and civil disturbance.
- Partial Impossibility – coronation of king and to sailing around the lake by boat.