Discharge of Contract

Meaning

• A discharge of contract ends the legal relationship of the parties. It terminates the vinculum juris or legal tie between the parties.

Various Ways of Discharging the Contract

The discharge of contract may take place by the following ways –

(1) Performance(2) Attempted performance or tender(3) Impossibility of performance(4) Agreement (5) Breach of Contract(6) Operation of Law(7) Lapse of Time

• When contract is discharged fully original rights and obligations get extinguished. However different consequences follow the different modes of discharge of contract.

• When contract is discharged by breach the original rights and obligations are ended but law takes its own course to impose remedial rights and obligations in form of damages and penalties.

• Performance – Sec 37• Attempted performance or tender- Sec 38• Discharge by Agreement – Sec 62 &63• Sec 62 – Novation – Substitution of the old

contract with the new.• Rescission - The parties may agree to cancel

all or some the terms of the contract.• Alteration.

• Sec 63 – Waiver – Where the promisee wholly dispense with the performance of the contract. It is abandonment of the rights.

• Waiver in English law differs from Indian law. In English law a consideration is required for the waiver whereas there is no such requirement in case of waiver under Indian law.

Time and Place of Performance

• Time and place of performace – Sec 46 to 49• When is “time” essence – S. 55 If the intention was that time should be of

essence of the contract. If such was not the intention, the contract does not become voidable but the promisee will be entitled to compensation for any loss.

Case – Bhudra Chand v. Betts (1915) 22 Cal. LJ 566 33 IC 347.

When is ‘time’ essence

• Generally in commercial contracts which provide for performance within a specified time, time is presumed to be of essence.

• When time is not essence in the contract must be performed within the reasonable period of time.

• Time and place of performance – Sec. 46 to 50.

Tender or Attempted Performance

Tender is an offer to perform. It is amount to an actual performance. A valid tender must fulfill the following conditions –

(1) Tender must be at proper time and place.(2) Tender must be unconditional (3) Tender must cover the whole set of

obligations. (4) Tender to one of several joint promisees has

the same effect as tender to all of them.

By operation of Law

• (1) Death.

• (2) Insolvency.

• (3) Insanity.

Novation

• Sec. 62 – If the parties to a contract agree to substitute a new contract for it, or to rescind or alter.

Novation may take place by (a) a new contract being substituted for an existing contract

between the same parties. (b) The contract between the parties being rescinded in

consideration of a new contract on the same or similar terms between some or all of the parties and a new party or parties.

(Rescission may take place by mutual consent of the parties by which they may cancel all or any of the terms of a contract).

Contingent Contract

• A contract may be contingent or absolute. In a contingent contract there is a condition to performance collateral or external to the contract.

• Such condition should not be the mere will of the parties, e.g. all contracts of insurance.

Classification of Contingent Contract

• (a) Contingent on future event happening (Sec 32)• (b) Contingent on future event not happening (Sec. 33)• © Contingent on future event happening within a fixed time

(Sec. 35)• (d) Contingent on future event not happening within a fixed

time (S.35)• (e) Contingent on the future conduct of a living person. (S. 34) • (f) Contingent on impossible events. (S. 36) – Sec 20 read with

sec 36.

See illustrations.

• Impossibility of the performance – Sec 56 (a) An impossibility on the face of it, e.g. an

agreement to discover a treasure by magic. Void an initio

• (b) When making the agreement parties were ignorant of its impossibility – e.g. mutual mistake about the very existence of the subject matter.

Couturier V Hstle [(1856) 5 H L C 673]• (c ) Supervening impossibility – Change in

circumstances,

• If when making the contract the promisor alone knew the impossibility, he shall have to compensate the promisee for any loss caused though the non – performance of such promise.

(Sec 56 third para)

• Where parties have made a contract to do or not to do anything if an uncertain future event happens, but when such event becomes impossible, the contract becomes void.

(Sec 32)

Supervening Impossibility

• Do or die theory – Paradine v Jane [(1647) Aleyn 26] As per this rule English Courts thought that the contract

entered into by the parties was an absolute one and gave no room to any express or implied condition that it could be discharged by supervening impossibility.

This attitude of the court was followed in a line of cases. In Ralli Bros. V Compania Naviera etc [(1920) 2 K B 287] it was held that impossibility of performance, as a rule, is not an excuse for non – performance.

Doctrine of implied term –subsequently the courts developed the theory that

even though the parties to a contract have not expressly made a condition that supervening impossibility would discharge the contract, the court will interpret the terms of the contract as containing such provision by implication.

Lord Loreburn in Tamplin V Anglo – Mexican Coy’s Case [(1916) 2 AC 397].

• But there has been another view and theory in English cases that the doctrine of implied term was a positive rule law.

Russkoe V Strik [(1922) 10 Lloyds L.R. 214]. Tatem v. Gamboa [(1939) 1 KB 132]

Indian Position

• The law of supervening impossibility is self – contained in S. 56 of the Indian Contract Act as a positive rule of law. The Indian law of frustration is only an interchangeable term to supervening impossibility. English theories of implied term need not concern us as S. 56 lays down a positive rule of law.

Satyabrata Ghose V. Mugneeram Bangur & Co. [AIR 1954 SC 44].

Grounds of Frustration

• Destruction of Subject matter – Taylor V Caldwel [(1863) 3 B & S 826].

• Death and disablement of the parties. –esp. in cases of contract of the nature of personal service

• Intervention by legislative and executive authority

• Intervention of war.• Change of circumstances.

Consequences of Frustration

• Sec. 65 – Restitution.

• Prima facie performance should be by made by the promisor (S.37), and the obligation binds the legal representative unless a contrary intention appears (S.37). See Sec 40 & 41.

• Joint Promisors – Sec 42 to 44 Sec. 42 to 44 is at variance with the English law. In

English law, joint promise and joint and several promise are two different things with respect to liability and devolution of liability. But in Indian law, joint promise is also joint and several promise.

• Joint Promisee –S.45 . The partners of a firm, the members of a

Hindu joint family, co owners and mortgagees are all joint promisees with respect to any debt in their favour.

• Performance in case of reciprocal promise.

• Apportion of Payment –The law laid down in Sec 59 to Sec. 61 of the

Contract Act incorporates the law laid down in the leading English case – Clayton case [(1816) 1 Men 572]