DISCHARGE OF CONTRACTS

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Introduction:
A contract means an agreement which is enforceable by law. An agreement consists of reciprocal promises between the two parties. In case of contract, each party is legally bound by the promise made by them. A contract is an obligation to perform sucha promise.
According to Section 2(h), of the Indian Contract Act, 1872, “contract is an agreement, which is enforceable by law”. It is an agreement or set of promises giving rise to obligations which can be enforced or are recognized by law.
(Note: unless otherwise stated, the section mentioned are of the Indian Contract Act, 1872)
Meaning Of Discharge Of Contract:
When an agreement, which was binding on the parties to it, ceases to bind them, the contract is said to be discharged. The discharge of contract takes place when these obligations in the contract comes to an end. In other words, discharge of contract implies termination of contractual obligations. It is to be said that, at the time of entering in a contract, parties are entitled to perform their contractual duties and when theseduties or obligations to be performed by the parties ends or terminates, we can say the situation as, a discharge of contract.
Modes Of Discharge Of Contract:
A contract can be discharged by the following modes: -
1.      Discharge by Performance
2.      Discharge by Mutual Consent
3.      Discharge by Subsequent Impossibility i.e. Doctrine of Frustration
4.      Discharge by Lapse of Time
5.      Discharge by Operation of Law
6.      Discharge by Breach of Contract
Each of the above mentioned modes are elaborated below:

1.      Discharge By Performance:
Section 37 provides the parties to the contract must either to perform, or offer to perform their respective promises. It takes place when the parties to the contract fulfill their obligations arising under the contract within thetime and manner as prescribed. Each party to a contract is bound to perform theirpart of the obligation. After the parties have made due performance of the contract, their liability under the contract comes to an end. In such a case, the contract is said to be discharged by performance. Thus, in regard to such a discharged contract, nothing remains, neither any right to perform nor any obligation to perform. The discharge of contract by performance is by
(a) actual performance
 (b) attempted/ anticipatory performance.
Actual performance is said to have taken place when each of the parties has done what they had agreed to do under the agreement. When the promisor offers to perform the contractual obligation, but the promisee refuses to accept the performances, it amounts to attempted performance/ tender.
In the case of West Bengal Financial Corporation V. Gluco Serires, (AIR1973Cal.268) on the issue of anticipatory performance, the facts of the case states that, A granted a loan to B amounting to Rs. 4,38,000 and also agreed to grant a further loan of rupees 1,62,000 at his discretion, provided that B made the repayment of the loan in accordance with the agreement at the rate of interest of Rs. 60,000 every year. B failed to make the repayment of loan on the terms as agreed. B insisted that A should grant further loan of Rs. 1,62,000 to him, to which A refused. B was therefore not entitled to discharge the contract on the ground of breach of the contract on the part of A.

2.      Discharge By Mutual Consent:
Section 62 states that, “if the parties to a contract agree to substitute a new contract for it, or to refund or remit or alter it, the original contract need not be performed”. The discharge of contract by mutual consent/agreement can be performed by below mentioned modes:-
2.1  Novation
As per Section 62 of the Act, novation means substation of an existing contract with a new one. Novation can be of two kinds:
(a)    Novation by change in the terms of the contract- Under this category, parties to contract are free to alter the contract which they have originally entered into. If they do so, their liability as regards with the original agreement is extinguished, and in its place, they become bound by the new altered agreement. For example, A owes B Rs. 10,000 for repayment of which, enters into an agreement with B. A gives B a mortgage of A’s estate for Rs. 5,000 in place of Rs. 10,000 (consent of both persons needed). In the case of D.D.A vs. Joint Action Committee(AIR 2008 SC 1343), the apex court held that if the appellant, a contracting party, intended to alter or modify the terms of the allotments of flats, it was obligatory on their part to bring the same in the notice of the allottee. Having not done so, the D.D.A. as relying on or the basis of orders of the purported office which was not backed by any statute, new terms of contract could not be thrust upon the allottees, the court held.
(b)   Novation by change in the parties to the contract- Under this category, it is possible that by novation, an obligation may be created for one party in place of another.For example, A owes money to B under a contract. It is agreed among A, B, and C that B shall thenceforth accept C as his debtor, instead of A. (consent of all three persons was needed). In the case of Satish Chandra Jain v. National Small Industries Corporation(AIR2003 SC 623),appellant stood guarantor to funding done to his proprietary business venture. Subsequently, the son converted his business into a private limited company. It was held that due to subsequent changes, which amounted to novation, appellant’s guarantee stood discharged
2.2  Alteration
As per Section 62 of the Act, alteration means when one or more terms of the contract are changed by the parties to the contract.
2.3  Remission
As per Section 63, remission as a mode enables the promisee to agree/ dispense/ remit performance of promise.
2.4  Recession
As per Section 64, recession is a cancellation of contract by both the parties to contract.
2.5  Waiver
Waiver means intentionally giving up on a right or deliberately abandon the right of a party to a contract.

3.      Discharge By Subsequent Impossibility (Doctrine of Frustration)
The performance of the contract may be possible when the contract is entered into but because of some event, the performance maysubsequently become impossible or unlawful. Section 56states that, “an agreement to do an impossible act in itself is void”. Impossibility here means not only the physical impossibility but also legal impossibility. Section 56 is based on the maxim, “les non cogit ad impossibilia” which means “the law does not compel a man to do what he cannot possibly perform”.
Para 2 of Section 56 states with regard to the validity of such contracts, “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 means that every contract is based on the assumption that the parties to the contract will be able to perform the same only when the due date of performance arrives. If because of some event, the performance has either become impossible or unlawful, the contract becomes void. Following are the illustrations to make clear the provision of section 56:
Eg.1. A and B contracts to marry each other. Before the time is fixed for the marriage, A goes mad. The contract becomes void.
Eg.2. A contracts to take in cargo for B at a foreign port. The government of the country to which A belongs declares war against the country in which the port is situated afterwards. The contract becomes void when war is declared.
Eg.3. A contracts to act at a theatre for six months in consideration of a sum paid in advance by B was made. A becomes too ill to act in the theatre. The contract to act on those occasions becomes void.
The Doctrine Of Frustration: When the performance of the contract becomes impossible, the purpose which the parties have in mind is frustrated. If the performance becomes impossible, because of a supervening event, the promisor is excused from the performance of the contract. This is known as doctrine of frustration under English Law, and it is covered by Section 56 of the Indian Contract Act,1872. In the case of Taylor v. Caldwell (1863 3B & S. 826; 129 R.R 573), A agreed with B to give him the use of music hall and garden for holding concerts on four different dates. B agreed to pay a rent of £100 for each of thesefour days. Before the performance, the hall was destroyed by fire and B sued A for the breach of contract. It was held that the contract has become void because of impossibility without any fault of A. On the similar lines, the case of Satyabrata Ghose v. Mugneeram(AIR 1954 SC 47) deals with.
Grounds of Frustration of Contract:The following are some grounds where the condition of  frustrationof contract arises –
a)      Destruction of subject matter
b)      Change of circumstances
c)      Non- Occurrence/ Non - Existence of a contemplated event
d)     Death / Incapacity of the party to contract
e)      Virtue of legislation/ Government intervention/ unforeseen change in law
f)       Declaration of the war

4.      Discharge by Lapse of Time:
A contract should be performed within a specified period of time as prescribed by the Limitations Act, 1963. If it is not performed and if no action is taken by the promisee within the specified period of limitation, promisee is deprived of remedy at law.

5.      Discharge By Operation Of Law:
A contract may be discharged by operation of law.The operation of law comes into force in circumstances as death of the promisor, insolvency or merger doctrine under property law.
In case of death of the promisor, the essence of personal contracts involve personal skills, or special qualifications which cannot be completed by legal heirs and hence discharged. A contract is also discharged by the insolvency of any one of the parties and he is discharged from his liabilities, debts payable towards the other party. In the law of real property, the merging of rights stands that the contract of conveyance of property merges into deed of conveyance (title of the property)(e.g. tenant is merged into ownership).

6.      Discharge By Breach Of Contract:
When a party having a duty to perform a contract fails to do that, or does an act whereby the performance of the contract by him becomes impossible, or he refuses to perform the contract, there is said to be a breach of contract. The other party is discharged from his obligation to perform his part. Breach of contract may be actual breach of contract or anticipatory breach of contract.
If one party defaults in performing his part of the contract on the due date, he is said to have commit the actual breach thereof. When on the other hand, a person repudiates a contract before the stipulated time for its performance has arrived, he is deemed to have committed anticipatory breach of contract provided under Section 39. In the case of Hochsterv. De LaTour (1853 2 E &B. 678:95 R.R 747),the defendant engaged the plaintiff on 12th April, 1852 as a courier service to accompany him on the tour of Europe. The tour was agreed to begin on 1st June, 1852. The defendant wrote to the plaintiff informing him that he had changed his mind and declined to take the services of the plaintiff. On 22nd may, 1852 the plaintiff brought an action against the defendant for the breach of contract. The defendant said that there could be no breach of contract before 1st June i.e. the date of performance. It was held that a party to an executory contract may make a breach of contract before the actual date of performance. The plaintiff action was, therefore, succeeded. Similarly, in the case of Frost v. Knight (1872 L.R 7. Ex. 111), the defendant promised to marry the plaintiff on his (defendants) father’s death. While the defendant’s father was still alive, he broke off the engagement. The plaintiff did not wait till the defendant’s father’s death and she immediately sued him for the breach of contract. She was successful in her action.
Effect Of Discharge Of Contract:
Once a contract stands discharged, parties to contract are no longer liable even though the obligations are not completed under the contract.

“This article is written by Ms. Sakshi Garge (B.Com DCL, Cyber Volunteer, Pursuing law) you can reach out to her at sakshigarge71@gmail.com

"Special thanks to Adv. Shruti Jain (Law Officer, Lawyers Collective) for her contribution as an Editor for this Article."

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