Case analysis: Discharge Of Contract

Name- Ankur Punj

Semester- 2nd
Roll code- 201215

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DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VIZAG, ANDHRA PRADESH

This is to certify that Mr. ____________ of 2nd semester prepared the project on
_________________________________________in partial fulfillment of his semester
course in the subject __________ during the academic year 2012-13 under my supervision
and guidance.

Signature of faculty

CONTENTS
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1.

Introduction

2.

Performance of contract

3.

Breach of contract

4.

Impossibility of performance and frustration

5.

Discharge by agreement and conclusion

6.

Conclusion

7.

Suggestions

8.

reference

INTRODUCTION

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When we form a contract, the next sage is reached, namely, the fulfilment of the objects the parties
had in mind. When the object is fulfilled, the liability of either party under the contract comes to an
end. The contract is then said to be discharged. But performance is not only way in which a contract
is discharged. When an agreement, which was binding on the parties to it, ceases to bind them, the
contract is said to be discharged. A contract may be discharged in the following ways
1) By performance of the contract
2) By breach of the contract
3) By impossibility of performance and performance
4) By agreement and Novation
When breach of contract could be made by promisor either by refusing to perform the contract or
disabling himself from performing the contract, before the due date of performance has arrived is
consider as Anticipatory breach of contract.

Performance of contract

Most legal systems make provisions for the discharge of a contracts where, subsequent to its
formation, a change of circumstances renders the contract legally or physically impossible of
performance. Section 37 of indian contract act says that the parties to a contract must either perform
or offer to perform their respective promises. Thus each parties bound to perform obligation under
the contract, unless the performance is dispensed with or excused under the provisions of the
contract act, or of any law.
Offer of performance:
The promisor must offer to perform his obligation under the contract to the promisee. This offer is
called tender of performance. It is then for the promisee to accept the performance. If he doesnt
accept the promisor is not responsible for non-performance, nor does he there by loss his rights
under the contract. In other words, the tender of performance if he rejected by the other parties,
execuses the promisor from further performance and entitled him to sue the promisee. For breach of
the contract. Thus the tender of performance is equivalent to performance. This is the effect of offer
of performance.
Effect of refusal to accept offer of performance
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Where a promisor has made an offer of performance to the promisee, under the offer has not
accepted the promisor has not responsible for non-performance, not thus he there by loss his rights
under the contract.
Every such offer must full fill the follpwing condition:1. It must be unconditional
2. It must be made at a proper time and place under such cercustances
that the person to whom it is made may have a reasonable opportunity
of ascertaining that the person by whom it is made able unwilling
there and then to do the whole of what he is bound by his promise to
do so.
3. If the offer is an offer to delivery anything to the promisee must have
a reasonable opportunity to seeing that the thing is offered is the thing
which the promisor is bound by his promise to delivery.
Effect of accepting performance from third person
When a promisee accepts performance of the promise from third person, he cant afterwards enforce
it against the promisor.
Case analysis:Satyabrata vs. mungneeram1
It is the bench of B.K. Mukherjee2 in which he rightly remarked that although many theories have
been profound by the judges and jurists in England regarding the juridical basis of the doctrine of
frustration yet the essential idea upon which the doctrine is based is that of the impossibility of
performance of contract: infact impossibility of performance and frustration often used as
interchangeable expressions. The changed circumstances, it is said , make the performance of the
contract impossible and parties are observed from the further performance of it has they didnt
promise to perform an impossibility.

Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for
exchange is not honored by one or more of the parties to the contract by non-performance or
interference with the other party's performance. If the party does not fulfill his contractual promise,
1Satyabrata
2

vs. mungneeram 1954 AIR 44

For more about : en.wikipedia.org/wiki/Bijan_Kumar_Mukherjea

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or has given information to the other party that he will not perform his duty as mentioned in the
contract or if by his action and conduct he seems to be unable to perform the contract, he is said to
breach the contract.

Impossibility of performance and frustration

Initial impossibility:Section 56 lays down the simple principle that an argument to do an act impossible in itself is
void.
For example an agreement to discover a treasure by magic, being impossible of performance is
void.
Subsequent impossibility:The 2nd paragraph of section 56 lays down the effect of subsequent impossibility performance.
Sometimes the performance of a contract is quite possible when it is made by the parties. But some
event subsequently happens which renders its performance impossible or unlawful. In either case
contract become void.
Case analysis:Paradine v jane3
In the 1st known English case of paradine v jane it was pointed out that subsequent happenings
should not affect a contract already made:
There the defendant had taken an estate on lease from the plaintiffs. The defendant was
dispossessed of it by alien enemies for some time and, therefore, refused to pay the rent for the
period of dispossession.
It was held that, when the party by his own contract creates a duty he is bound to make it
good, if he may not with standing any accident by inevitable necessary because he might have
provided against it by his contract. Though the land be surrounded or gained by the seasor made
barren by wildfire, yet the lesser will have his whole rent.
3

Paradine v jane (1647) aleyn 26:82 ER 897

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Frustration
The performance of the contract had become physically impossible because of the disappearance of
the subject-matter. But the principle is not confined to physical impossibilities. It extends also to
cases where the performance of the contract is physically possible but the object the parties had in
mind has failed to materialise. The well-known coronation cases of which Krell v henry is one
illustrates this:
The defendant agreed to hire from the plaintiff a flat for June 26 and On which days it had been
announced that the coronation procession would Pass along that place. A part of the rent was paid in
advance. But the Procession having been cancelled owing to the King's illness the defendant refused
to pay the balance. It was held that the real object of the contract as recongnised by both contracting
parties, was to have a view of the coronation procession. The takibg place of procession was there
fore the foundation of contract. The object of the contract was frustrated by non happening of the
coronation and plantiff was not entitled to recover the balance of the rent.

DISCHARGE BY AGREEMENT
Contracts which need not be performed
section 62 provides that if the parties to a contract agree to substitute a O contract for or to rescind
or alter the original contract need not be performed. lf tie parties to a contract agree to substitute a
new contract for or to rescind or alter the original contract need not be performed.
Novation
When the parties to a contract agree to substitute the existing contract with a new contract that is
called novation. In the well-known case of scarf v Jardine 4 Lord selborne explained the meaning
and effect of novation in the following words:There being a contract in existence some new contract is substituted for it either between the
same parties or between different parties, the consideration mutually being the discharge of the Old
contract. A common instance of it in partnership cases is where upon the dissolution of a partnership
the persons who are going to continue in business agree and undertake as between themselves and
the retiring partner that they will assume and discharge the whole liabilities of the business usually
taking over the assets and if in that case they give notice of that arrange to a creditor and ask for
his accession to it, there becomes a contract between the creditor who accedes and the new firm to
4

Scarf -v- Jardine; HL 1882

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the effect that he will accept their liability instead of the old liability, and on the other hand that they
promise to pay him for that consideration.
Hence novation is of two kinds
1. Change of parties:The first illustration to Section 62 is a case of novation by change of parties. If A is a debtor and
the creditor agrees to accept B in his place as the debtor the original contract between the creditor
and A is at an end. A novation of this kind usually takes place when a new partner is admitted into
an existing firm or when a partner retires from a firm and the new firm as constituted after
admission or retirement accepts the liabilities of the old firm and this is approved by the persons
dealing with the firm. Concurrence of all the parties is necessary.
Notation and rescission:-An order of arrest of the supplier's vessel was passed in an Admiralty suit.
The plaintiff made an out of court settlement with the owner of the vessel. under a subsequent
agreement the debtor agreed to pay not only the amount claimed in the suit but costs and interest
also. The payment under the agreement was guaranteed by 3rd party.
2. Substitution of New Agreement:When the parties to a contract agree to substitute a new contract for it, the original contract
is discharged and need not be performed. It is necessary for this principle that the original contract
must be subsisting and unbroken.the substitution of new contract is not possible after there has been
a breach of the original contract. An early illustration is manohar koyal vs. Thakur das naskar5
The plaintiff sued recover the sum of Rs. 1173 due on a bond. After the due date of the
bond,the plantiff agreed to accept Rs.400 in cash and a new bond of Rs.700 payable by instalments.
Subsequently the defendant neither gave Rs.400 nor the bond.

conclusion
The remaining forms of discharge will be given only passing mention. A written obligation
is discharged by a material alteration made by the obligee for a fraudulent purpose. Alterations by a
stranger, accidental alterations, and 'immaterial alteration do not affect the obligation as the law is at
present in the United States. "Where an obligation arising under a contract is reduced to judgment,
5

manohar koyal vs. Thakur das naskar [1887] I.L.R. 15 Cal 319

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or where an obligation arising under a simple contract is put in the form of a specialty, the original
obligation is by operation of law extinguished and merged in the new obligation."34 An arbitration
and award has much the same effect as a judgment. The award is conclusive on the parties, and if
the award has changed the character of the defendant's duty, his original obligation is discharged,
and suit lies on the award alone. But if the award purports merely to determine the amount of the
contractual obligation, suit lies in form upon such obligation, recovery being limited by the award.
The obligation of any formal document, such as sealed con- tracts and negotiable instruments, can
be discharged by voluntary surrender or cancellation of the document. Such action is some- what in
the nature of an executed gift, the document itself being the obligation. Where there is no
instrument that can itself be regarded as the obligation, there is great difficult in proving the
execution of a gift, for the obligation itself cannot be physically delivered. But the surrender or
cancellation of evidential documents may even in- these latter cases prevent proof of the obligation,
or may be given a evidence of a mutual-rescission. Arthur L. Corbin. Yale Law School.
The remaining forms of discharge will be given only passing mention. A written obligation
is discharged by a material alteration made by the obligation for a fraudulent purpose. Alterations
by a stranger, accidental alterations, and 'immaterial
Alteration do not affect the obligation as the law is at present in the United States. "Where
an obligation arising under a contract.is reduced to judgment, or where an obligation arising under a
simple contract is put in the form of a specialty, the 'original obligation is by operation of law
extinguished and merged in the new obligation."34 An arbitration and award has much the same
effect as a judgment. The award is conclusive on the parties, and if the award has changed the
character of the defendant's duty, his original obligation is discharged, and suit lies on the award
alone. But if the award purports merely to determine the amount of the contractual obligation, suit
lies in form upon such obligation, recovery being limited by the award. The obligation of any
formal document, such as sealed contracts and negotiable instruments, can be discharged by
voluntary surrender or cancellation of the document. Such action is some- what in the nature of an
executed gift, the document itself being the obligation. Where there is no instrument that can itself
be regarded as the obligation, there is great ciifficulty in proving the execution of a gift, for the
obligation itself cannot be physically -delivered. But the surrender or cancellation of evidential
documents may even in-these latter cases prevent proof of the obligation, or may be given as
evidence of a mutual, rescission. But the rescission and the substitution are interwoven into one
body and one breath, neither one having power of separate existence. In pleading such a discharge,
the defendant must allege the very same things that must be alleged by a plaintiff who sues upon a
contract, except that does it to have to show a breach. The defendant is not seeking a remedy and
hence he does not have to establish the existence of any secondary obligation. He must allege
merely the agreement, showing that it includes a rescission of the former obligation. No technical
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language is required. The facts must be so stated that the court can determine whether or not there
was an agreement and what were its terms. It need not be expressly stated that the first obligation
was discharged, and indeed such an allegation would be unavailing if the proper interpretation of
the facts shows that a rescission was no part of the new agreement and that therefore it was not
"substituted". If the facts as stated are inconsistent with the continued life of the former obligation,
the plea is sufficient. A novation is one form of such a substituted agreement. Some problems arise
in connection with the statute of frauds and with contracts under seal, but they will be passed by in
this article. A covenant never to sue upon an obligation has been given the effect of a discharge to
prevent circuity of action.

Suggestions
When we form a contract, the next sage is reached, namely, the fulfilment of the objects the
parties had in mind. When the object is fulfilled, the liability of either party under the contract
comes to an end. The contract is then said to be discharged. But performance is not only way in
which a contract is discharged. There being a contract in existence some new contract is substituted
for it either between the same parties or between different parties, the consideration mutually being
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the discharge of the Old contract

References
Books:1. Contract & specifc relief by Avtar Singh
2. Mullas The Indian Contract act contract by Sir
Dinshah Fardunji Mulla
3. Contract 1 cases and materials by V Kesava
Rao
Links referred:1.http://www.scribd.com/doc/51587850/DISCHARGE11 | P a g e

OF-CONTRACT-blabla
2. wekipedia.com
3. indiakanoon.org

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