Law of contract discharge of contract unit viiPresentation Transcript
Discharge of Contract
• A discharge of contract ends the legal
relationship of the parties. It terminates the
vinculum juris or legal tie between the parties.
Various Ways of Discharging the
The discharge of contract may take place by the
following ways –
(2) Attempted performance or tender
(3) Impossibility of performance
(5) Breach of Contract
(6) Operation of Law
(7) Lapse of Time
• When contract is discharged fully original
rights and obligations get extinguished.
However different consequences follow the
different modes of discharge of contract.
• When contract is discharged by breach the
original rights and obligations are ended but
law takes its own course to impose remedial
rights and obligations in form of damages and
Performance – Sec 37
Attempted performance or tender- Sec 38
Discharge by Agreement – Sec 62 &63
Sec 62 – Novation – Substitution of the old
contract with the new.
• Rescission - The parties may agree to cancel
all or some the terms of the contract.
• Sec 63 – Waiver – Where the promisee wholly
dispense with the performance of the
contract. It is abandonment of the rights.
• Waiver in English law differs from Indian law.
In English law a consideration is required for
the waiver whereas there is no such
requirement in case of waiver under Indian
Time and Place of Performance
• Time and place of performace – Sec 46 to 49
• When is “time” essence – S. 55
If the intention was that time should be of
essence of the contract. If such was not the
intention, the contract does not become
voidable but the promisee will be entitled to
compensation for any loss.
Case – Bhudra Chand v. Betts (1915) 22 Cal. LJ
566 33 IC 347.
When is ‘time’ essence
• Generally in commercial contracts which
provide for performance within a specified
time, time is presumed to be of essence.
• When time is not essence in the contract must
be performed within the reasonable period of
• Time and place of performance – Sec. 46 to
Tender or Attempted Performance
Tender is an offer to perform. It is amount to an
actual performance. A valid tender must fulfill
the following conditions –
(1) Tender must be at proper time and place.
(2) Tender must be unconditional
(3) Tender must cover the whole set of
(4) Tender to one of several joint promisees has
the same effect as tender to all of them.
By operation of Law
• (1) Death.
• (2) Insolvency.
• (3) Insanity.
• Sec. 62 – If the parties to a contract agree to substitute a
new contract for it, or to rescind or alter.
Novation may take place by
(a) a new contract being substituted for an existing contract
between the same parties.
(b) The contract between the parties being rescinded in
consideration of a new contract on the same or similar
terms between some or all of the parties and a new party
(Rescission may take place by mutual consent of the parties
by which they may cancel all or any of the terms of a
• A contract may be contingent or absolute. In a
contingent contract there is a condition to
performance collateral or external to the
• Such condition should not be the mere will of
the parties, e.g. all contracts of insurance.
• Impossibility of the performance – Sec 56
(a) An impossibility on the face of it, e.g. an
agreement to discover a treasure by magic. Void
• (b) When making the agreement parties were
ignorant of its impossibility – e.g. mutual mistake
about the very existence of the subject matter.
Couturier V Hstle [(1856) 5 H L C 673]
• (c ) Supervening impossibility – Change in
• If when making the contract the promisor
alone knew the impossibility, he shall have to
compensate the promisee for any loss caused
though the non – performance of such
(Sec 56 third para)
• Where parties have made a contract to do or
not to do anything if an uncertain future event
happens, but when such event becomes
impossible, the contract becomes void.
• Do or die theory – Paradine v Jane [(1647) Aleyn 26]
As per this rule English Courts thought that the contract
entered into by the parties was an absolute one and
gave no room to any express or implied condition that
it could be discharged by supervening impossibility.
This attitude of the court was followed in a line of cases.
In Ralli Bros. V Compania Naviera etc [(1920) 2 K B 287]
it was held that impossibility of performance, as a
rule, is not an excuse for non – performance.
Doctrine of implied term –
subsequently the courts developed the theory that
even though the parties to a contract have not
expressly made a condition that supervening
impossibility would discharge the contract, the
court will interpret the terms of the contract as
containing such provision by implication.
Lord Loreburn in Tamplin V Anglo – Mexican Coy’s
Case [(1916) 2 AC 397].
• But there has been another view and theory
in English cases that the doctrine of implied
term was a positive rule law.
Russkoe V Strik [(1922) 10 Lloyds L.R. 214].
Tatem v. Gamboa [(1939) 1 KB 132]
• The law of supervening impossibility is self –
contained in S. 56 of the Indian Contract Act
as a positive rule of law. The Indian law of
frustration is only an interchangeable term to
supervening impossibility. English theories of
implied term need not concern us as S. 56 lays
down a positive rule of law.
Satyabrata Ghose V. Mugneeram Bangur & Co.
[AIR 1954 SC 44].
Grounds of Frustration
• Destruction of Subject matter – Taylor V
Caldwel [(1863) 3 B & S 826].
• Death and disablement of the parties. –esp. in
cases of contract of the nature of personal
• Intervention by legislative and executive
• Intervention of war.
• Change of circumstances.
Consequences of Frustration
• Sec. 65 – Restitution.
• Prima facie performance should be by made by
the promisor (S.37), and the obligation binds the
legal representative unless a contrary intention
appears (S.37). See Sec 40 & 41.
• Joint Promisors – Sec 42 to 44
Sec. 42 to 44 is at variance with the English law.
In English law, joint promise and joint and several
promise are two different things with respect to
liability and devolution of liability. But in Indian
law, joint promise is also joint and several
• Joint Promisee –
S.45 . The partners of a firm, the members of a
Hindu joint family, co owners and mortgagees
are all joint promisees with respect to any
debt in their favour.
• Performance in case of reciprocal promise.
• Apportion of Payment –
The law laid down in Sec 59 to Sec. 61 of the
Contract Act incorporates the law laid down in
the leading English case – Clayton case [(1816)
1 Men 572]