DISCHARGE OF CONTRACTS

INTRODUCTION

As per the Indian Contract Act, 1872, discharge of contract means “termination of contractual relationships between the parties”. The term “discharge of contract” refers to the end of the parties’ contractual relationship. When a contract ceases to operate, i.e. when the rights and responsibilities generated by it expire, it is said to be discharged. Contracts do not have to be fulfilled under the following circumstances:

  1. If the parties to a contract agree to Novation, Rescission, or Alteration, the original contract does not have to be performed, according to Section 62. In this instance, the previous contract is replaced with a new one.
  2. Under Section 63, if the parties to a contract agree to forego or defer fulfilment of a promise whole or partially, the original contract is dissolved.
  3. When a person at whose option a contract is voidable rescinds it, the other party to the contract is not required to perform his promise, according to Section 64
  4. According to Section 67, if any promisee neglects or refuse to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused for the non-performance of the contract.

WHAT ARE THE REASONS FOR THE DISCHARGE OF THE CONTRACT?

  1. When a contract isn’t completed or when it’s past due, it’s called non-performance.

For example – When a musical artist performs at a show, the host and the musician release the contract at the end of the performance. The host, on the other hand, has the option of terminating the arrangement if the artist refuses to come or perform.

  • Extinction or the loss of the contract’s subject matter. For example- On certain days, a musical hall was rented for a series of concerts. The music hall burned destroyed before the first performance. The contract is now null and void.
  • The failure of one of the parties to fulfil his or her responsibilities.
  • The contractor’s death, as well as the apprentice he/she was supposed to educate. For example- Sushant Singh Rajput had to perform on a world tour. But he was met with an unfortunate death; this made all his contracts void and null.
  • Bankruptcy.
  • The lapse of time. For example- Piyush borrows money from John and promises to pay it back in monthly instalments for the following five years. He, on the other hand, does not pay a single instalment. John calls him a few times before getting busy and doing nothing. Three years later, he asks the court for assistance in reclaiming his funds. The court, however, dismisses his claim since he has beyond the three-year time limit for recouping his payments.
  • Failing to notify the person who has been charged.
  • The release of a defendant who has been apprehended on a capiases and satisfaciendum [warrant a writ or process commanding an officer to place a person (as a debtor) under civil arrest until a claim is satisfied]

METHODS OF DISCHARGE OF CONTRACTS

  1. DISCHARGE BY PERFORMANCE (Section 37 to 55)

The term “performance” refers to carrying out a contract’s requirements. Discharge by performance occurs when the contracting parties complete their contractual duties within the time and in the way specified. The parties are released and the contract is terminated in this circumstance. However, if only one partner keeps his word, he is discharged. This party has a right of action against the other party who has breached the agreement. Discharge by performance can be done in two ways-

  1. Actual performance
  2. Attempted performance
  • DISCHARGE BY AGREEMENT OR CONSENT

Since this parties’ agreement is what binds them, the contract can be dissolved by their additional agreement or consent. It can be done in various ways:

  1. Novation (Section 62)

Novation occurs when

  1. a new contract replaces an existing one between the same parties, or
  2. A contract between two parties is cancelled in exchange for a new contract between one of the parties and a third party on the same conditions.
  • Rescission (Section 62)

The term “rescission” refers to the termination of a contract. Any of the following methods can be used to terminate a contract:

  1. By mutual consent: Before a contract is breached, the parties can simply agree to rescind it.
  2. As stated by the aggrieved party: When a party breaches a contract, the aggrieved party has the right to terminate the contract without affecting his right to compensation for the violation.
  3. By the party whose permission is not freely given: If a contract is voidable, one of the parties has the choice to cancel it. A contract can also be deemed rescinded inferentially.
  4. Alteration (Section 62)

The term “alteration” refers to a change in one or more contract provisions. The original contract is not completely rescinded as a result of the change. Only a few of the original contract’s conditions are changed or rendered ineffective. The change must be done with the consent of all parties concerned. A lawful change releases the parties from the original contract and binds them to a new one.

  • Remission (Section 63)

Accepting a lesser sum than what was contracted for or a lesser fulfilment of the promise made is called to as remission.

  • Waiver (Section 63)

Waiver refers to a party’s purposeful renunciation of a contractual right in exchange for the release of the other party’s obligation.

  • Merger

When an inferior right accruing to a party under a contract merges with a superior right accruing to the same party under the same or another contract, it is called a merger.

  • DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE

According to the Section 56 of the Indian Contract Act, 1872, “an agreement to do an act impossible in itself is void.” There are two types of impossibility of performance such as-

  1. Impossibility existing at the time of contract

There is no way to discharge a contract that requires you to do something that is clearly impossible. Such impossibility may have been known or unknown to the parties at the time of the agreement’s acceptance.

  1.  Impossibility arising subsequent to the formation of contract

It is possible that, after the contract has been formed, the fulfilment of the contract will become impossible. This is known as Impossibility arising subsequent to the formation of contract

  • DISCHARGE OF CONTRACT BY LAPSE OF TIME

A contract must be completed within a certain amount of time, according to the Limitation Act, 1963. If it is not completed within this time frame, and no action is taken by the promisee in a court of law within that time frame, the promisee is forbidden from bringing a lawsuit in a court of law. The contract is discharged in such instances.

  • DISCHARGE OF CONTRACT BY ACCORD AND SATISFACTION

To fulfil a contract by accord and satisfaction, the parties must agree to accept performance that differs from that which was initially promised. It can be looked into in the following headings.

Accord: An accord is a legally binding agreement to execute a certain act in order to fulfil a previous obligation. The original contract is suspended, but not discharged, by an agreement.

Satisfaction: Satisfaction is defined as the fulfilment of the agreement, which fulfils the original contractual duty.

If the obligator refuses to fulfil his or her obligations – The obligee can seek a decree for particular performance on the accord or sue on the original obligation.

  • DISCHARGE BY OPERATION OF LAW
  • By death: If the contracts are based on the promisor’s personal talent or aptitude, the contract may be discharged upon the promisor’s death.
  •  Insolvency: When a person is ruled insolvent, he or she is relieved from any obligations committed prior to the judgement. When one of the parties to a contract becomes insolvent, Insolvency Court issues a “order of discharge.”
  • Merger: When a superior right contract merges with an inferior right contract, the inferior right contract is instantly discharged.
  • Unauthorized change to contract terms: If one party makes a major change to the contract without the approval of the other, the other party has the right to terminate the contract.

CASE LAWS

  1. SCARF V. JARDINE 1882 [1](In respect with novation)

FACTS- Scarf and Rodgers, two partners, formed a firm. Scarf stepped down, and Beach took his position. The firm’s business continued as usual, and no public notification of the change of partners was issued to the firm’s customers. Jardine was a long-time supplier to the company. He delivered the things without being aware of the alteration. When the firm failed to pay the dues, he learned about the alteration and was considering taking legal action against it. He preferred to sue the new firm, which went bankrupt afterwards. Then he sued Scarf, his previous business partner.

DECISION- Jardine had a claim against Scarf if he had taken legal action against the old firm and partners in the first place. He couldn’t deny the new firm’s existence and sue Scarf now that he’d accepted its identification. It was decided that novation could mean either a change of parties with the same contract or a change in the contract between the same parties.

  • SNOW VIEW PROPERTIES LIMITED V. SINDH AND PUNJAB BANK (W.P. No. 411 of 2007) [2](In respect with doctrine of accord and satisfaction)

FACTS- The petitioner took a loan and secured it by mortgaging his home. Because the petitioner was unable to repay the loan within the specified time frame, the bank confiscated the mortgaged property. Following the breach of contract, the petitioner entered into an agreement with the bank to pay a set amount of money in exchange for his property. Even after receiving the promised cash, the bank officials agreed to this and did not release his property.

HELD: The court ruled that the bank must return his property to him, citing the doctrine of accord and satisfaction as being entirely applicable in this case. Since the new contract was proposed to address the prior contract’s breach, and the banks freely agreed to it, they are unable to back out of their new conditions.

  • NAGENDRA KUMAR BRIJRAJ SINGH V. HINDUSTAN SALTS LIMITED[3] (In respect with novation)

FACTS- The defendants advertised job openings at a specific salary in their organisation. The petitioner was chosen for the position. He was offered the job at a lower pay scale the day he started. He agreed to this new contract, which paid him less than the quoted rate. He later sued the defendants for the compensation that had been advertised.

DECISION- The court dismissed this claim, stating that because the plaintiff agreed to a new contract with lower salary, the contract was novated and hence valid. The pay scale is at the heart of the contract, and alterations to it can make or break it. As a result, the defendants were found not guilty.

CONCLUSION

In conclusion “discharge of a contract” simply refers to the end of a contract’s duties. This is because the rights and duties in the terms of the contractual obligations were established by the parties who originally entered into the contract.

As a result, once those rights and responsibilities are established, the contract is said to be discharged. Even though the contract’s responsibilities remain unfulfilled, once it is discharged, the parties to it are no longer obligated or accountable.

There is a great lot of confusion or lack of understanding in the law of contracts when it comes to specific matters related to discharge. It’s because few people use phrases like condition and warranty interchangeably, and the remainder is due to incorrect reasoning about things that are admittedly tough. The most effective method of terminating a contract is through performance. As a result, both parties adhere to the contract’s terms and then seek its termination. Discharge by breach, on the other hand, is the most disagreeable manner to be relieved of responsibilities. As a result, a breach of contract can result in damages as well.[4]


[1] ((1882) 7 AC 345).

[2] AIR 2010 Cal 94.

[3] (2001) 1 GCD 532.

[4] Blog.ipleaders.in; Legalservicesindia.com.

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