DISCHARGE OF CONTRACT

INTRODUCTION

Under the Indian Contract Act 1872, discharge of contract means the disposing/ending of the contract between parties, and hence contractual obligations of both parties to the contract end there. Parties are discharged from the contract when they have not fulfilled their contractual obligations or when some kind of happening or procedure of any law/ act allows the parties to terminate the contract. A contract is said to be terminated when it cannot be executed anymore further and rights and obligations of contractual clauses come to an end. There are primarily five ways in which a contract can be discharged; i.e., by performance, by frustration, by agreement, by assignment, and by breach of Contract.

DISCHARGE BY PERFORMANCE

Performance of contract means abiding and executing all those obligations which have been inserted through the different clause. Discharge of contract happens when parties to the contract perform their obligations arising of the contract within a reasonable time or within the prescribed time and in the same manner which has been prescribed. However, when one of the parties to a contract performs his obligations, thereby he is only discharged from his part of obligations and not the other party. The discharged party afterward can file a petition against the undischarged party. Performance is of two types i.e. actual and attempted performance[1]. When both parties to a contract perform their contractual duties in the prescribed manner within the stipulated time, this brings the contract to an end. This is known as the actual performance of the contract. And after the actual performance, there lies no claim against each other. But when the promisor refuses to accept the performance, such kind of performance is called tender or attempted performance. A tender needs some conditions to be fulfilled, such as the “tender must be unconditional and it must be created at a proper place and proper time, it must be to the whole obligation as contained in the contract.”

Under Sec. 39 of Indian Contract Act, 1872, where 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 consent in its continuance.[2]

DISCHARGE BY IMPOSSIBILITY

Section 56 of the Indian Contract Act talks about the discharge of contract by impossibility or frustration of the contract. It states that “an agreement to do an act which is impossible in itself is declared void.[3]” In Paradine vs. Jane[4], the English court laid this doctrine. It was stated “that when law casts a duty upon a person and he is unable to perform for no fault of his, he is executed for non-performance. In Krell vs. Henry[5], the defendant, in this case, agreed to rent from the plaintiff an apartment for two days, on which days it had been declared earlier that the coronation process would pass along that place, some amount of rent was paid in advance. However, the procession was soon called off because of the king’s health, the defendant refused to pay the balance afterward since the object i.e. to have a view of the coronation had been frustrated by the non – occurrence of the procession, the plaintiff was not entitled to recover the balance.

Therefore, the doctrine of impossibility is applied with full force where the actual and specific subject matter of the contract has ceased to exist. In a situation where a  contract arises for a performance, by a particular individual, as in the case of painting a portrait, and no substitute is likely to do the same, then the contract will generally be frustrated on the ground of incapacity of that person. The intervention of war or war-like situation is between the performances of contract also results in frustration of the contract. A contract will itself get dissolved when parliament/ legislative intervention occurs which contravenes the furtherance of the contract.

DISCHARGE BY ASSIGNMENT

The other way is to discharge the contract by assignment. Assignment of a contract means the transfer of rights and liabilities arising out of a contract to a third party. The assignment will be considered valid only if it’s executed in written form. As such, there are no specific provisions that deal with the assignment in the Indian Contracts Act. All such provisions are given in the Transfer of Property Act.

DISCHARGE BY TERMINATION

As the contract is created by the means of the agreement it can be terminated in the same way as well i.e. termination by an agreement. When both parties to a contract agree to make a fresh contract substitute the older one, the original contract is discharged right there only. According to Section 62 of the Indian Contract Act, “if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed”[6]. A contract is discharged by mutual agreement through novation, rescission, alteration, remission, and waiver.

DISCHARGE BY MUTUAL AGREEMENT

When a new contract is made as a substitute for an existing one that is called novation in the Indian Contract Act. The moment parties to the contract decide to replace the existing contract with a newer one, the original existing contract ends there.

Recission means annulment of the contract. When both the parties to a contract by mutual agreement decided to rescind the contract, the contract is discharged. When there is non-performance of the contract by both the parties for a larger period without any complaint or notice this shows an implied form of recission. In case of recission, no new contract is made further. Alteration comes into the picture when there is a change in any of the clauses/terms of the existing contract with the knowledge and consent of both of the parties. Alteration allows for change of terms of the contract but doesn’t allow for a change of the parties, whereas innovation the change of the parties can happen.

Remission allows that there can be acceptance of a lesser sum or there can be lesser fulfillment of terms of the contract than what was promised earlier. Section 63 of the Indian Contract Act states “that every promisee may remit or dispense with it, wholly or in part, or extend the time of performance or accept satisfaction instead of performance.[7]” Then, at last, is a waiver which means the abandonment of any right which has been made under the contract. When a party waives its rights, the other party is released from all the contractual obligations.

Discharge of the contract allows parties to end their contractual obligations when they fail to do their contractual obligations. A contract is said to be terminated when it cannot be executed further and therefore all rights and obligations of contractual clauses come to an end.

Author(s) Name: Aman Jaisawal (Chanakya National Law University, Patna)

References:

[1] Indian Contract Act 1872, s38

[2] Indian Contract Act 1872, s 39

[3] Indian Contract Act 1872, s 56

[4] Paradine v Jane,[1647] EWHC KB J5

[5] Krell v Henry, [1903] 2 KB 740

[6] Indian Contract Act 1872, s 62

[7] Indian Contract Act 1872, s 63

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