Discharge of Contract under Indian Contract Act

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Author: Sourish Saha, Research Associate

A contract is discharged when the agreement is terminated. The most desirable case is when a contract terminates because it has been completely performed with all its terms carried out. A contract may be terminated for other reasons, such as a party’s breach or default. The various modes by which a contract can be discharged are by performance, by impossibility, by operation of law, by agreement, by bar of limitation and by breach of contract1. 

Doctrine of Frustration

Where the supervening circumstances have so changed by the time of performance of the terms of a contract, by which the parties are compelled to perform the promise under conditions which have been changed, would require them to do something alternatively, which they had never agreed to do otherwise. Such a performance is called frustration of contract. This doctrine arises from the coming into existence of facts not within the contemplation of the parties but beyond the control of parties2.

Firstly, a contract is discharged when its performance becomes impossible on account of a change of statutory law of the land. Parties generally contract on the basis of the law existing at the time of the contract3Secondly, the commercial frustration of adventure by delay means the happening of some unforeseen delay without the fault of either party to a contract. Contract is discharged by frustration. Thirdly, a contract is discharged by frustration if a specific thing that is essential to the performance of the contract is destroyed. Finally, non-existence of a state of things4that form the basis of the contract, frustrates the contract itself5. Death of the party to contract is like non-existence or non-occurrence of the event6. Interference by the government may frustrate the contract7.

Discharge by performance

The general rule is that the parties must perform precisely all the terms of the contract in order to discharge their obligations8. Tender of performance is equivalent to performance in the situation where party A cannot complete performance without the assistance of party B and party A makes an offer to perform which party B refuses. A further exception exists where a court is satisfied that substantial performance is present. If however, the performance is not held to amount to substantial performance the claimant is entitled to nothing. Ambiguity arises as to what amounts to substantial performance9. The rule relating to discharge through full performance applies where an entire contract exists. In situations where it is possible to divide a contract into separate parts, which means, if a sum is agreed to be payable periodically, then the courts can award a sum for the separate parts of the contract which have been finished10. In the exceptions of contract discharged by performance, performance can be prevented by the promise. This means where the promisee prevents completion of the performance then the promisor is entitled to payment for the work, which has been concluded11.

Unilateral Discharge

Unless the agreement is made final, for unilateral discharge, consideration must be furnished in order to make the agreement enforceable. Unilateral discharge takes place where only one party has rights to surrender. When one party has entirely performed his part of the promise, he is no longer obligated to perform anything under the law but has rights to compel the performance of the agreement by the other party12.

Breach

A failure to perform the terms of a contract constitutes a breach. It can happen in the two following ways. Either by anticipatory breach or he may break a condition or otherwise break the contract in such a way that it amounts to a substantial failure of consideration. The innocent party is not under any obligation to wait until the date fixed for performance before commencing his action13. It appears that the right to keep the contract alive subsists even where the innocent party is increasing the amount and not mitigating the damages received14. Where the innocent party elects to treat the contract as continuing the affirmation can be regarded as a species of waiver15.

Other Exceptions to Discharge of Contract

Personal incapacity is where the personality of one of the parties is significant may frustrate the contract or make it difficult to be discharged16. The non-occurrence or non-existence of a specified event may frustrate the contract as discussed earlier17. Governmental interference may also frustrate the contract18. Supervening illegality also leads to frustration of contract19.

Conclusion

Discharge of a contract means termination of a contract. Discharge of contract can be performed in the ways mentioned in the first paragraph of this article. A discharged contract refers to contract that is fully performed. It is the act of making a contract or agreement null. The exceptions though have been highlighted in the article as well. It is something important that sometimes discharge becomes difficult because of breach or by impossibility or illegality, it is compulsory for both the parties to either execute the terms or it is the onus of the court to award compensation. In conclusion, discharge may take place by performance of the contract, release, accord, extinguishment, set off, rescission, defeasance, extinction, inability of the parties, lapse of time, bankruptcy or insolvency, or release of partners.

  1. http://www.lawteacher.net/contract-law/lecture-notes/discharge-lecture.php, (visited Jun 30, 2013). []
  2. Couturier v Hastie (1856) 5 HL Cas 673 []
  3. Taylor v Caldwell (1863) 3 B&S 826. []
  4. Herne Bay Steamboat Co v Hutton [1903] 2 KB 683. []
  5. FA Tamplin v Anglo-Mexican Petroleum [1916] 2 AC 397 []
  6. Krell v Henry [1903] 2 KB 740 []
  7. Metropolitan Water Board v Dick Kerr [1918] AC 119 []
  8. Cutter v Powell (1795) 6 Term Rep 320. []
  9. Bolton v. Mahedeva [1972] 1 WLR 1009, Hoenig v Issacs [1952] 2 All ER 176 []
  10. Ritchie v. Atkinson (1808) 10 East 295 []
  11. Planche v Colburn [1831] EWHC KB J56 []
  12. http://www.e-lawresources.co.uk/Discharge-through-performance.php, (visited Jun 29, 2013). []
  13. Hochster v. De La Tour (1853) 2 E&B 678 []
  14. White & Carter v. McGregor [1962] AC 413 []
  15. Panchaud Freres SA v. Establissments General Grain Co [1970] 1 Lloyd’s Rep 53 []
  16. Condor v. The Baron Knights [1966] 1 WLR 87, Phillips v. Alhambra Palace Co [1901] 1 QB 59. []
  17. Herne Bay Steamboat Co v. Hutton [1903] 2 KB 683 []
  18. Metropolitan Water Board v. Dick Kerr [1918] AC 119 []
  19. Denny, Mott & Dickinson v James Fraser [1944] AC 265 []

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