The discharge of a contract means the termination of the contractual relationship between the parties. Under the Indian Contract Act, 1872, a contract may be discharged in the following ways:
- Discharge by Performance
- Discharge by Impossibility of Performance
- Discharge by Breach of Contract
- Discharge by Mutual Agreement
DISCHARGE BY PERFORMANCE
When both parties fulfill their respective obligations under the contract, it is said to be discharged by performance. This is the most common and desirable mode of discharge. Discharge by performance is mentioned in the following sections:
🔹 Section 37 – Obligation to Perform
- This section provides that parties must either perform or offer to perform the promises made under the contract.
- If a promisor dies, their legal representatives are liable unless the contract states otherwise.
🔹 Section 38 – Refusal to Accept Offer of Performance
Offer of performance is also known as “tender”. This section states that, if the promisor makes a valid offer to perform and the promisee refuses to accept, the promisor cannot be blamed for non-performance. Essentials of Valid Offer of Performance are as follows:
- Must be Unconditional- The offer of performance must be unconditional. If the promisor offers to pay only a part of the sum due but says that it should be considered as a full payment, he is imposing a condition, therefore he cannot be considered to be a valid offer of performance
Case: Navin Chandra vs. Yogendra Nath (AIR 1967 All 23)-In this case the tenant sent two cheques in payment of rent to landlord. The landlord returned the cheque and insisted payment to be made by cash. The landlord then sued him for ejectment on non payment in cash. Then, tenant contended he make a valid offer of performance, but the court held that it is not valid offer of performance because the debtor cannot put condition on offer of performace. - Proper Time & Place: The offer of performance should be made at proper time and place with an opportunity to promisee to ascertain that the promisor will make proper performance.
Case: Startup vs. Macdonald [(1843) 6 Mann & G 593]- In this case delivery of goods at 9 PM on the last due date was held valid as it was within reasonable time. - Opportunity to Examine Goods: The promisee must be allowed to confirm that the performance matches contract terms.
- Offer to One Joint Promisee is Valid: If there are multiple joint promisees, performance offered to one is considered valid for all.
🔹 Section 40 – Personal Performance
If the contract requires a promisor to personally perform (e.g., singing, painting, etc.), then only that individual can perform it. Otherwise, a competent representative can be appointed.
🔹 Section 41 – Acceptance from Third Party
If the promisee accepts performance from a third party, they cannot afterwards enforce it against the original promisor.
🔹 Section 42 to 44 – Joint Promises
- Section 42: Joint promisors must perform during their lives; after their death, legal representatives are liable.
- Section 43: Any one of the joint promisors can be compelled to perform. Others must contribute equally.
- Section 44: Release of one joint promisor does not discharge others or the released promisor’s liability to co-promisors.
DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE
According to Section 56 of the Indian Contract Act, an agreement to perform an impossible act is void. This includes both initial and subsequent impossibility.
- Initial Impossibility: The act was impossible from the beginning.
Example: A agrees with B to discover treasure by magic – void ab initio. - Subsequent Impossibility: The act became impossible due to unforeseen events after the contract was made.
Doctrine of Frustration
When the performance of the contract becomes impossible, the purpose which the parties have in mind is frustrated. If the performance of a contract becomes impossible, due to an unforseeable event, then in such a case the promisor cannot be forced for the performance of the contract. This doctrine is known as doctrine of frustration and it was originated firstly in English law and is now covered under section 56 of the Indian Contract Act.
Case: Har Prasad Choubey vs. Union of India (AIR 1973 SC 2380)- In this case the appellant was the highest bidder for slack coal belonging to the respondents railways. The appellant made full payment for the same. When he applied for the wagons for transporting coal to ferozabad. Then the coal commissioner denied stating that coal should only be used for local purpose. So in this case now the contract is unable to be performed due to the act of coal commissioner in such a situation contract is frustrated and party is excused from the performance of act.
DISCHARGE BY BREACH OF CONTRACT
If a party fails or refuses to perform their obligation under the contract, it’s termed as a breach. Breach can be:
- Actual Breach: Failure to perform on the due date.
- Anticipatory Breach: One party repudiates the contract before the due date.
Section 39 – Anticipatory Breach
Anticipatory breach of contract refers to the repudiation of contract by one party to it before the due date of its performance has arrived.
Section 39 of Indian Contract Act deals with the anticipatory breach, “When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.”
Effect of anticipatory breach of contract- If there is anticipatory breach by the party, the other party has two alternatives which are:
- To rescind the contract- The party can rescind the contract immediately, the party can make the contract at end and have a power to bring action for breach of contract.
- To keep the contract alive- The other alternative the party had is he can wait for the appointed date on which contract is ought to be completed and treat the contract as subsisting or alive even after the repurdiation.
DISCHARGE BY MUTUAL AGREEMENT
A contract can also be discharged by mutual agreement in any of the following ways.
- Novation- The term ‘novation’ means the substitution of a new contract for the existing one. When by the agreement of party the new contract replaces the older one. Then in such a situation old contract is declared to be discharged by novation.
- Rescission- Rescission means cancellation of the contract. If by mutual agreement the contracting parties agree to rescind the contract, the contract is discharged. A contract can be rescinded before the performance becomes due.
- Alteration- Alteration means change in the terms of the contract. It also has the effect of termination of the contract. In alteration there can be change of only terms of contract and not who are the parties to the contract
References:
- Law of Contract-I by R.K. Bangia
- Indian Contract Act, 1872
