DISCHARGE OF A CONTRACT
DISCHARGE BY PERFORMANCE
When parties to a contract do what they had undertaken to do under the contract, it is said that they have actually performed their obligations to the contract. Thus, when both the parties perform their respective obligations, the contract comes to an end.
Contracts usually indicate when, where and how the performance is to be done. It must be done strictly according to the terms and conditions of the contract.
When the promisor offers to perform his obligation, but promisee refuses to accept the performance. It is also known as tender.
According to Section 38 of the Act, where a promisor has made an offer of performance to the promisee, and the offer has not been accepted, the promisor is not responsible for non-performance, nor does he thereby lose his right under the contract.
A valid tender should fulfill the following conditions:
1. It must be unconditional
2. It must be for the whole quantity, contracted for or for the whole obligation. It must not be in installments, if the contract requires it in full.
3. It must be by a personwho is in apositionand is willing to performthe promise.
4. It must be at the proper time and place. A tender of goods after the business hours or of the goods or money before the due date will not be valid.
5. It must be in proper form.
6. It must be made to a proper person, i.e., the promisee or his authorised agent.
7. In case of the tender of goods, the promisee must be given a reasonable opportunity to inspect the goods.
8. It may be madeto one of the several joint promisees.
DISCHARGE BY AGREEMENT OR CONSENT
According to Section 62 of the Act, if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.
The various ways in which a contract is discharged are:
· NOVATION: New contract substituted for old contract with the same or different parties.
· RESCISSION: When some or all terms of a contract are cancelled.
· ALTERATION: When one or more terms of a contract is/are altered by the mutual consent of the parties to the contract.
A owes money to B under a contract. It is agreed between A, B and C, that B shall thenceforth 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.
A owes B 10,000 rupees. A enters into an agreement with B, and gives B a mortgage of his (A’s), estate for 5,000 rupees in place of the debt of 10,000 rupees. This is a new contract and extinguishes the old.
1. When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is the promisor. The party rescinding a voidable contract shall, if he had received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received.
2. 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 to the person from whom he received it.
DISCHARGE BY REMISSION
According to Section 63 of the Act, every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.
The various ways in which a contract is discharged are:
· REMISSION: Acceptance of a lesser fulfillment of the promise made.
· WAIVER: Mutual abandonment of the right by the parties to contract.
A owes B 5,000 rupees. A pays to B, and B accepts, in satisfaction of the whole debt, 2,000 rupees paid at the time and place at which the 5,000 rupees were payable. The whole debt is discharged.
DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE
The doctrine of frustrationof a contract is dealt by Section 56 of the Act is divided into two parts:
The first part deals with an initial impossibilitythat is known to both parties; ‘an agreement to do an act impossible in itself is void.’
The second part deals with a subsequent impossibility. Section 56 states that a contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
It lays down a rule of positive law and does not leave the matter to be determined according to the intention of the parties.
· A agrees with B to discover treasure by magic. The agreement is void.
· A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The contract becomes void.
· A contracts to marry B, being already married to C, and being forbidden by the law to which he is subject to practice polygamy. A must make compensation to B for the loss caused to her by the non-performance of his promise.
· A contracts to take in cargo for B at a foreign port. A’s Government afterwards declares war against the country in which the port is situated. The contract becomes void when war is declared.
· A contracts to act at a theatre for six months in consideration of a sum paid in advance by B. On several occasions A is too ill to act. The contract to act on those occasions becomes void.
Taylor v Caldwell (1863)Caldwell agreed to let a music hall to Taylor so that four concerts could be held there. Before the date of the first concert, the hall was destroyed by fire. Taylor claimed damages for Caldwell’s failure to make the premises available. The court held that the claim for breach of contract must fail since it had become impossible to fulfill. The contractual obligation was dependent upon the continued existence of a particular object. Blackburn J stated: "The principle seems to us to be that, in contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance."
Krell v Henry Henry hired a room from Krell for two days, to be used as a position from which to view the coronation procession of Edward VII, but the contract itself made no reference to that intended use. The Kings illness caused a postponement of the procession. It was held that Henry was excused from paying the rent for the room. The holding of the procession on the dates planned was regarded by both parties as basic to enforcement of the contract.
When Impossibility of performance is not an excuse:
· Difficulty of performance– due to some uncontemplated events or delays.
· Commercial impossibility– e.g. expectations of higher profits not realised, sudden depreciation of currency etc.
· Impossibility due to failure of a third personon whose work the promisor relied
· Strikes, lockouts & civil disturbances; unless the parties have specifically agreed in this regard at the formation of the contract.
· Failure of one of the objects, where there are several objects, does the discharge the contract
DISCHARGE BY LAPSE OF TIME
The Limitation Act 1963, clearly states that a contract should be performed within a specified time (3 years for enforcement of most rights) called period of limitation. If it is not performed and if the promisee takes no action within the limitation time, then he is deprived of his remedy at law.
DISCHARGE BY OPERATION OF LAW
• Death: In case of contracts, which involve personal skill or ability, the contract is discharged or terminated on the death of the promisor. However, in other contracts, the rights and liabilities of a deceased person shall pass on to the legal representatives of the deceased person
• Merger: It is an operation of law that extinguishes a right due to its coincidence with another greater right in the same person. On merger, the inferior rights are not required to be enforced. (e.g. A tenant purchases the house from the Landlord; the rental agreement is discharged as the tenant is now the owner)
• Insolvency: After a person is adjudicated as insolvent, all of his rights and liabilities are transferred to the Official Receiver or the Assignee, as the case maybe. When he is adjudged as insolvent, he is discharged from all liabilities incurred prior to his adjudication.
• Unauthorised alteration of the terms of a written agreement:If one party without the consent of the other party makes a material alteration in the contract, the other party can avoid the contract. In such cases, the effect of alteration would be the same as that of cancellation of the document. Material alteration means any alteration or change in the contract that affects the rights and liabilities of the parties to the contract significantly.However, an alteration which is not material or which is made to carry out the common intention of the parties, does not affect the validity of the contract.
• Rights & liabilities becoming vested in the same person(e.g. bill of exchange gets into the hands of the acceptor)
DISCHARGE BY BREACH OF CONTRACT
The breach results either when:
1. The party has failed to perform on the date that performance is due (actual breach) or
2. The party indicates in some manner that he will not execute his obligations under the contract prior to the date that performance is expected. The latter circumstance is referred to as anticipatory repudiation.
In an anticipatory breach of contract, a party fails to perform an obligation under the contract before performance is due. The refusal to perform under the contract must be evidenced by words or actions that demonstrate the intention not to perform.