DISCHARGE OF CONTRACT n DISCHARGE OF CONTRACT When

DISCHARGE OF CONTRACT

n DISCHARGE OF CONTRACT Ø When the rights and obligations arising out of a contract are extinguished, the contract is said to be discharged or terminated. A contract may be discharged in any of the following ways: 1. By performance—actual or attempted. 2. By mutual consent or agreement. 3. By subsequent or supervening impossibility or illegality. 4. By lapse of time. 5. By operation of law. 6. By breach of contract. n DISCHARGE BY PERFORMANCE Ø Performance of a contract takes place when the parties to the contract fulfil their obligations arising under the contract within the time and in the manner prescribed. Sec. 37 lays down that the parties to a contract must either -perform or offer to perform their respective promises, unless such performance is dispensed with or excused. Performance of a contract is the most usual mode of discharge of a contract. Performance maybe: (I) Actual performance; or (2) Attempted performance or Tender. Ø Ø

n DISCHARGE BY MUTUAL CONSENT OR AGREEMENT n 1. Novation. ‘Novation occurs when a new contract is substituted for an existing contract, either between the same parties or between different parties, the consideration mutually being the discharge of the old contract. When the parties to a contract agree for ‘novation, ’ the original contract is discharged and need not be performed. The following points are also worth noting in connection with novation: (a) Novation cannot be compulsory. (b) The new contract must be valid and enforceable. Ø Ø Ø n Ø 2. Alteration of a contract means change in one or more of the material terms of a contract. If a material alteration in a written contract is done by mutual consent, the original contract is discharged by alteration and the new contract in its altered form takes its place. In case of novation there may be a change of parties also while in case of alteration parties remain the same, only the terms of a contract are altered.

n 3. Rescission. A contract may be discharged, before the date of performance, by agreement between the parties to the effect that it shall no longer bind them. Such an agreement amounts to ‘rescission’ or cancellation of the contract, the consideration for mutual promises being the abandonment by the respective parties of their rights under the contract. An agreement of rescission releases the parties from their obligations arising out of the contract. n 4. Remission may be defined ‘as the acceptance of a lesser sum than what was contracted for or a lesser fulfilment of the promise made. ’ n 5. Waiver means the deliberate abandonment or giving up of a right which a party is entitled to under a contract, whereupon the other party to the contract is released from his obligation.

n DISCHARGE BY SUBSEQUENT OR SUPERVENING IMPOSSIBILITY OR ILLEGALITY n IMPOSSIBILITY AT THE TIME OF CONTRACT. If the impossibility is not obvious and the promisor alone knows of the impossibility or illegality then existing or the promisor might have known as such after using reasonable diligence, such promisor is bound to compensate the promisee fur any loss he may suffer through the non-performance of the promise, in spite agreement being void ab-initio [Section 56] n SUBSEQUENT IMPOSSIBILITY. 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’. n In order that the Section would apply the following conditions must be fulfilled: (1) That the act should have become impossible; (2) That impossibility should be by reason of some event which the promisor could not prevent; and (3) That the impossibility should not be self-induced by the promisor or due to his negligence. n n n

n CASES OF SUPERVENING IMPOSSIBILITY: Ø 1. Destruction of subject-matter. 2. Failure of ultimate purpose. 3. Death or personal incapacity of promisor. 4. Change of law. 5. Outbreak of war. Ø Ø n Ø Ø Ø CASES WHERE IMPOSSIBILITY OF PERFORMANCE IS NOT AN EXCUSE: I. Difficulty of performance. 2. Commercial impossibility. 3. Impossibility due to the default of a third person. 4. Strikes and lock-outs. 5. Failure of one of the objects.

n DISCHARGE BY LAPSE OF TIME Ø In certain circumstances lapse of time may also discharge a contract. Where “time is of essence in a contract, ” if the contract is not performed at the fixed time, the contract comes to an end, and the party not at fault need not perform his obligation and may sue the other party for damages. n DISCHARGE BY OPERATION OF LAW Ø A contract terminates by operation of law in the following cases: a. Death. Where the contract is of a personal nature, the death of the promisor discharges the contract. b. Insolvency. A contract is discharged by the insolvency of one of the parties to it c. Merger. Where an inferior right contract merges into a superior right contract, the former stands discharged automatically. d. Unauthorised material alteration. A material alteration made in a written document or contract by one party without the consent of the other, will make the whole contract void. Ø Ø

n DISCHARGE BY BREACH OF CONTRACT Ø ‘Breach of contract by a party thereto is also a method of discharge of a contract, because ‘breach’ also brings to an end the obligations created by a contract on the part of each of the parties. The aggrieved party, i. e. , the party not at fault can sue for damages for breach of contract as per law; but the contract as such stands terminated. Breach of contract may be of two kinds: Ø (1) Anticipatory breach: An anticipatory breach of contract is a breach of contract occurring before the time fixed for performance has arrived. Ø (2) Actual breach: It occurs when a party fails to perform his obligation upon the date fixed for performance by the contract.