Discharge of

Contracts

By Uma Narayanan
 Discharge of Contract

❏ When the rights and obligations arising

out of a contract are extinguished
contract is said to be discharged.
❏ A contract is said to be discharged when it
ceases to operate,i.e.,when the rights
and obligations created by it come to an
end.
 I. Discharge by Performance
❏ Performance of a contract is widely recognized as the primary and
most effective method of discharging contractual obligations.
❏ This occurs when the parties involved fulfill their respective duties as
specified in the contract, adhering to the agreed-upon terms and
conditions within the stipulated time-frame.
❏ Essentially, discharge by performance ensures that all obligations
arising from the contract are met satisfactorily, emphasizing the
importance of completing actions precisely as outlined in the
contractual agreement.
 1. BY ACTUAL PERFORMANCE

● This occurs when both parties to the contract fulfill their

respective promises exactly as agreed upon.
● Requirements:
○ Complete: The performance must fully satisfy the
obligations laid out in the contract.
○ Precise: It must adhere strictly to the terms and conditions
specified in the contract.
○ Timely: Performance must be done within the timeframe
stipulated in the contract, or within a reasonable time if no
specific timeframe is mentioned.
 2. By Attempted Performance or Tender:
This happens when one party offers to perform their obligations under the
contract, but the other party either rejects the offer or does not accept it.

Also known as "tender of performance," it signifies the readiness and

willingness of the promisor (performing party) to fulfill their part of the
contract.

Requirements:
● The offer to perform must be made in good faith and must conform to
the terms of the contract.
● If the performance is rejected without a valid reason, the promisor
may still be considered to have fulfilled their obligation under the
contract, provided the offer was made properly.
 II. DISCHARGE BY BREACH OF CONTRACT

❏ When a contract is breached by one party, it releases the other party

or parties from their obligations under the contract. The non-breaching
party (innocent party) also gains the right to pursue remedial
measures as allowed by law or the terms of the contract.

❏ THERE ARE TWO TYPES OF BREACHES UNDER THIS:

A. ACTUAL BREACH
B. ANTICIPATORY BREACH
A. ACTUAL BREACH

❏ This occurs when one party fails to

perform their obligations under the
contract at the agreed-upon time or
in the manner specified in the
contract.
❏ For example, if Party A fails to deliver
goods on the agreed delivery date,
B. ANTICIPATORY BREACH

❏ Also known as anticipatory repudiation, this

happens when one party clearly communicates,
through words or actions, that they do not intend to
fulfill their contractual obligations in the future.
❏ This can occur before the actual performance is
due.
❏ For example, if Party A informs Party B in advance
that they will not be able to deliver goods on the
II. DISCHARGE BY BREACH OF CONTRACT

In both cases of breach, the innocent party can choose to pursue

legal remedies such as seeking damages, specific performance
(forcing the breaching party to fulfill their obligations), or in some
cases, rescission (cancellation) of the contract.
The type and extent of remedies available depend on various
factors including the nature of the breach, the terms of the
contract, and applicable laws.
B. ANTICIPATORY BREACH OF CONTRACT (SEC
39)
Anticipatory Breach of Contract Occurs:
1. When a party before the time for performance is due
announces that he is not going to perform the contract or,
2. When a party by his own act disables himself from
performing the contract

Eg: C enters into a contract with B to supply certain

articles on 1st June. Before 1st June he inform that he will
not be able to supply the goods.
CONSEQUENCES OF ANTICIPATORY BREACH

WHEN ANTICIPATORY BREACH OCCURS , THE AGGRIEVED PARTY CAN TAKE

THE FOLLOWING STEPS:

A. MAY TREAT THE CONTRACT AS DISCHARGED

(i) He can treat the contract as discharged, so that he is no longer

bound by any obligations under the contract; &

(ii) He can immediately adopt the legal remedies available to him for
breach of contract, viz., file a suit for damages or specific performance
or injunction.
 CONSEQUENCES OF ANTICIPATORY BREACH

B. MAY TREAT THE CONTRACT AS NOT DISCHARGED:

Anticipatory breach, by itself, does not discharge the contract. The contract is discharged,
when the aggrieved party chooses to treat it as discharged. The aggrieved party may
decide not to rescind the contract but to treat the contract as alive and operative and
wait for the time of performance. In such a case the consequences are as follows:
(i) The contract will be operative for the benefit of both the parties. The contract will
continue to exist and may even be performed by the other party.
(ii) If the contract is not rescinded and subsequently an event happens which discharges
the contract legally (e.g. a supervening impossibility) the aggrieved party loses his right
to sue for damages.
CONSEQUENCES OF ANTICIPATORY BREACH

For example, A agrees to supply one ton of sugar to B

by 20th August. On 10th August, A informs B that he
cannot supply sugar B did not accept the refusal and
preferred to wait till 20th August. On 15th August, the
Minister declares nationalisation of sugar industry. Now
the contract is discharged and B has no remedy against
A.
 III. DISCHARGE BY OPERATION OF LAW
❏ A CONTRACT TERMINATES BY OPERATION OF LAW IN CASE OF DEATH,
INSOLVENCY, AND MERGER.

A. Death: In contracts where personal skill or ability is essential, such as

artistic performances or specialized services, the contract typically
terminates upon the death of the individual involved. However, in other
cases, the rights and liabilities may transfer to the legal representatives of
the deceased individual. This underscores the importance of clarity and
foresight in contract terms regarding such contingencies.
III. DISCHARGE BY OPERATION OF LAW

B. Insolvency: When a person is declared insolvent, they

are relieved of liabilities incurred before their insolvency
adjudication. The process involves the transfer of rights
and liabilities, with exceptions, to an appointed officer of
the court known as the Official Assignee/Receiver. This
ensures an orderly resolution of financial obligations and
protects the interests of all parties involved.
III. DISCHARGE BY OPERATION OF LAW

C. Merger: In legal terms, merger occurs when

inferior and superior rights combine in the
same person. When this happens, any inferior
rights under a contract typically cease to exist.
This principle highlights the consolidation of
rights and the impact it has on contractual
obligations.
III. DISCHARGE BY OPERATION OF LAW

D. Lapse of Time: Contracts can come to an

end through the passage of time. In civil law,
obligations and liabilities associated with
contracts may become unenforceable due to
the expiration of the statutory time limit. The
Limitation Act specifies these provisions,
ensuring fairness and clarity in legal
III. DISCHARGE BY OPERATION OF LAW

E. Unauthorized Material Alteration: In

contract law, the integrity of agreed-upon
terms is crucial. If one party materially alters
the terms of a contract without the consent
of all parties involved, the contract is
considered discharged. This means it cannot
be enforced any longer, as the original terms
have been fundamentally changed without
SUBSEQUENT OR SUPERVENING
IMPOSSIBILITY

A. Pre-contractual Impossibility
A contract that is impossible to perform at the time it
is entered into is considered void ab initio, meaning it
is null from the outset and creates no rights or
obligations. Section 56(1) of the Indian Contract Act
states: "An agreement to do an act impossible in itself
is void."
SUBSEQUENT OR SUPERVENING
IMPOSSIBILITY
This principle can be understood through three
scenarios:
(i) Known to the Parties: If both parties are aware of
the impossibility at the time of entering the contract,
the agreement is “void ab initio” and creates no rights
or obligations. Example: A promise to ride a horse to the
Sun or an agreement to discover treasure by magic is
inherently impossible, making such agreements void.
SUBSEQUENT OR SUPERVENING IMPOSSIBILITY

(ii) Unknown to the Parties: When both parties are ignorant of the
impossibility at the time of making the contract, the contract is void
due to mutual mistake. Example: A agrees to sell his horse to B, but
unknown to both parties, the horse had already died at the time of
making the contract. This contract is void.
(iii) Known Only to the Promisor: If only the promisor knows about
the impossibility of performance at the time of making the contract,
the promisor must compensate the promisee for any loss sustained
due to the non-performance of the promise. This is specified in
Section 56(3) of the Indian Contract Act.
B. POST- CONTRACTUAL IMPOSSIBILITY

A contract that was initially capable of being

performed may subsequently become impossible to
perform or unlawful. In such cases, the contract
becomes void. This is known as the doctrine of
supervening impossibility or the “doctrine of
frustration”. Frustration occurs when it is established
that, due to a subsequent change in circumstances,
the contract has become impossible to perform or
has been deprived of its commercial purpose.
B. POST- CONTRACTUAL IMPOSSIBILITY

“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”. [Sec.56] Para
2.
 GROUNDS FOR FRUSTRATION

Supervening impossibility can arise in various ways. Some common

scenarios include:
(i) Destruction of the Subject Matter of the Contract:
When the subject matter of the contract is destroyed, the contract is
discharged, and no party is liable to perform. The destruction must be of
such a nature that it makes the performance of the contract impossible.
*Example*: If A agrees to sell B a specific piece of artwork, and the artwork
is destroyed in a fire before delivery, the contract is discharged due to the
impossibility of performance.
 GROUNDS FOR FRUSTRATION

(ii) Change of Law:

The performance of a contract may become unlawful due to a
subsequent change in law. When a new law or regulation prohibits
the performance of the contract, the original contract becomes
void.
*Example*: If A contracts to sell a particular chemical to B, but a
new law is passed banning the sale of that chemical, the contract
becomes void due to the change in law.
 GROUNDS FOR FRUSTRATION

(iii) Failure of Pre-conditions: When a contract is entered

into based on the continued existence of a certain state of
things, the contract is discharged if that state of things
changes.
Illustration 1: A and B contract to marry each other. Before
the time fixed for the marriage, A goes mad. The contract
becomes void.
 GROUNDS FOR FRUSTRATION
(iv) Death or Incapacity for Personal Services:

When the personal qualifications of a party form the basis of the contract, the
contract is discharged in cases of death or personal incapacity.

Example: G contracts to act at a theatre for six months in consideration of a sum

paid in advance by H. On several occasions, G is too ill to act. The contract to act
on these occasions becomes void.

In such cases, the inability of the individual to perform the contracted personal
services due to death or incapacity discharges the contract, as the specific
personal qualities or abilities of the party were essential to the performance of the
contract.
 GROUNDS FOR FRUSTRATION

(v) Outbreak of War:

A contract entered into during a war with an alien enemy is void ab initio. A
contract entered into before the war commenced between citizens of countries
subsequently at war remains suspended during the pendency of the war. After
the termination of the war, the contract revives and may be enforced.

Example: If A, a citizen of country X, enters into a contract with B, a citizen of

country Y, and later countries X and Y go to war, the contract is suspended during
the war. Once the war ends, the contract can be revived and enforced.
 DOCTRINE OF FRUSTRATION
When the common object of a contract can no longer be carried out, the court may
declare the contract to be at an end. This principle is part of the doctrine of
frustration, where a contract is deemed void if the fundamental purpose of the
agreement is “frustrated”due to unforeseen events.

In such cases, the courts recognize that the original intent of the parties cannot be
fulfilled, and thus, it would be unjust to hold them to their obligations under the
contract. The contract is discharged, and the parties are released from their duties.

**Example:** If A and B enter into a contract to hold a concert at a specific venue,

but the venue burns down before the event, the common object of the contract
(holding the concert at that venue) can no longer be carried out. The court may
declare the contract to be at an end due to the frustration of its purpose.
Satyabharata Ghosh v. Mugniram Bengur [AIR
1954 SCC 44]

Facts of the Case: Mugneeram Bangur & Co. entered into a

contract with Satyabrata Ghose to sell a piece of land. The contract
specified that the development work on the land would be completed
within a certain period, after which the land would be transferred to
Ghose. However, before the development work could be completed,
the government requisitioned the land for war purposes during World
War II. As a result, Mugneeram Bangur & Co. could not fulfill their
contractual obligations within the stipulated time.
Satyabharata Ghosh v. Mugniram Bengur
[AIR 1954 SCC 44]

Legal Issue: The primary legal issue was

whether the requisitioning of the land by
the government amounted to a frustration
of the contract, thereby discharging
Mugneeram Bangur & Co. from their
contractual obligations.
Satyabharata Ghosh v. Mugniram Bengur [AIR
1954 SCC 44]

Judgment: The Supreme Court of India held that the requisitioning of the
land by the government did not amount to a frustration of the contract. The
Court observed that the doctrine of frustration is applicable when the
performance of a contract becomes impossible due to an unforeseen event,
which destroys the very foundation of the contract. However, in this case,
the requisitioning of the land was a temporary measure, and it did not
make the performance of the contract permanently impossible.

The Court further stated that the requisitioning of the land only delayed the
performance of the contract and did not discharge the parties from their
obligations. Therefore, Mugneeram Bangur & Co. was still bound to fulfill
their contractual obligations once the requisitioning order was lifted.
Exceptions to Doctrine Frustration

The doctrine of frustration or supervening

impossibility, which can discharge a contract due
to unforeseeable events that make performance
impossible, does not apply in certain situations.
Here are cases where the contract is not
discharged despite difficulties in performance:
 Cases Where Doctrine of Frustration Does
Not Apply

1. Self-Induced Impossibility:
○ When the impossibility of performance is due to the
actions of the promisor, it does not excuse them from
fulfilling their contractual obligations.
○ Example: If a party fails to secure necessary permits
or approvals due to their negligence, the contract is
not discharged.
 Cases Where Doctrine of Frustration Does Not
Apply

Foreseeable Events:
● If the event causing the impossibility was foreseeable and could
have been anticipated at the time of contract formation, the doctrine
does not apply.
● Example: A contract for outdoor events that are disrupted by
predictable seasonal weather changes will not be discharged.
 Cases Where Doctrine of Frustration Does Not
Apply

Increased Difficulty or Expense:

● Mere difficulty, inconvenience, or increased expense
in performing the contract does not constitute
frustration.
● Example: If the cost of raw materials rises
significantly, making the contract more expensive to
perform, the contract is not discharged.
 Cases Where Doctrine of Frustration Does
Not Apply

Alternative Performance Possible:

● If the contract can still be performed in a different
manner, the original obligation is not discharged.
● Example: If the delivery route specified in the contract
is blocked, but an alternative route is available, the
contract remains enforceable.
Cases Where Doctrine of Frustration Does Not
Apply

Temporary Impossibility:
● Temporary impossibility that only suspends
performance does not discharge the contract.
● Example: A strike that temporarily halts work
does not discharge a long-term construction
contract; performance is merely postponed.
Cases Where Doctrine of Frustration Does Not
Apply

Partial Impossibility:
● When only part of the contract becomes
impossible to perform, the remaining obligations
must still be fulfilled.
● Example: If a contract involves delivering
multiple goods, and one item becomes
unavailable, the contract for the remaining items
is still valid.
Cases Where Doctrine of Frustration Does Not
Apply

Specific Clauses:
● Contracts that include force majeure or similar clauses
often specify events that do not discharge the contract. The
presence of such clauses means the contract must be
interpreted according to its terms.
● Example: A contract with a clause excluding pandemics as
a ground for non-performance will not be discharged due to
a pandemic.
 CONCLUSION

❏ The doctrine of frustration or supervening impossibility is a

safeguard against enforcing contracts when unforeseen
and uncontrollable events make performance genuinely
impossible.
❏ However, it does not apply in cases where the impossibility
is self-induced, foreseeable, merely inconvenient or
expensive, temporarily impeding, or partially affecting
performance.
❏ Understanding these exceptions ensures that contracts are
enforced fairly, balancing the interests of both parties in
light of unforeseen circumstances.