discharge of contract under indian contract act, 1872

A contract creates a certain obligation on one or all parties involved. The discharge of contract happens when these obligations come to an end. When the contract is formed by agreement it may also be discharged through agreement, subject to the conditions of the contract.

A contract may be discharged in the following ways-

  • By performance of the contract
  • By breach of the contract
  • By impossibility of the performance
  • By agreement and novation
  1. DISCHARGE BY PERFORMANCE- Each party to a contract is bound to perform his part of the obligation. After the parties have made the due performance of the contract, their liability under the contract comes to an end. In such a case, the contract is said to be discharged by performance.

ILLUSTRATION- A agrees to sell his cycle to B for an amount of Rs 5000 to be paid by B on the delivery of the cycle. As soon as it is delivered B pays the amount.

Since both, parties to the contract fulfill their obligation arising under the contract, then it is discharged by performance.

  • DISCHARGE BY BREACH OF CONTRACT- When a party having a duty to perform a contract fails to do that, or does an act whereby the performance of the contract by him becomes impossible, or he refuses to perform the contract, there is said to be a breach of contract on his part. On the breach of the contract by one party, the other party is discharged from his obligation to perform his part of the obligation. The breach of contract may be either –
  • Actual breach of contract
  • Anticipatory breach of contract

 EXAMPLE- A is to supply certain goods to B on 1st January. On 1st January, A does not supply the goods. He has made an actual breach of contract. On the other hand, if A informs B on 1st December that he will not perform the contract on 1st January, A has made an anticipatory breach of contract.

  • DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE – If the performance of the contract is impossible, the same is void. Section 56 of the Indian contract act deals with this. The first paragraph of Section 56 provides that an agreement to do an act impossible in itself is void. The second paragraph provides that a contract to do an act, which becomes unenforceable if the act becomes-
  • Impossible
  • For the reason of some event which the promisor could not prevent

ILLUSTRATION- A enters into a contract with B to marry his sister C within one year. However, A met with an accident and becomes insane. The impossibility of performance leads to the discharge of the contract.

  • DISCHARGE BY AGREEMENT AND NOVATION – As per Section 62 of the Indian Contract Act, 1872  – Effect of novation, rescission, and alteration of contract, “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.
  • NOVATION- Novation means the substitution of an existing contract with a new one. When by an agreement between the parties to a contract, a new contract replaces an existing one, the already existing contract is thereby discharged, and in its place, the obligation of the parties in respect of the new contract comes to existence.

Novation is of two kinds-

  1. By change in the terms of the contract
  2. By change in the parties to the contract

 In Satish Chandra Jain vs. National Small industries corporation, the appellant stood guarantor to funding done to his proprietary business venture. Subsequently, the son converted the business into a private limited company. It was held that due to subsequent changes, which amounted to novation, the appellant’s guarantee stood discharged.

  • RECISSION- Section 62 of the Indian Contract Act also permits the parties to rescind their contract. The Supreme Court allowed the parties to rescind under this section a contract for the sale of forest coupes because of substantial variance between the particulars of quantity and quality of timber held out at the time of the auction and the timber available. The contractor was allowed to refund his deposit. But no compensation was allowed to him for his loss because the contract contained a clause against compensation in such circumstances. This was decided in the famous case law, namely Syed Isar Masood v State of MP.
  • ALTERATION- Section 62 of the Indian Contract Act, 1872 defines alteration. Alteration of a contract may take place when one or more of the terms of the contract is/are altered by mutual consent of the parties to the contract. In such a case the old contract is discharged. In the case of United India Insurance Co Ltd v M.K.J. Corpn, it was delivered in the judgement that “Good faith is a continuing obligation since even after entering into the contract, no material alteration can be made by a party in the terms of the contract without the consent of the other.

REMISSION OF PERFORMANCE (SECTION 63)

Promisee may dispense with or remit performance of promise- Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.

ILLUSTRATION– A promise to paint a picture for B. B afterwards forbids him to do so. A is no longer bound to perform the promise.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

If you are interested in participating in the same, do let me know.

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If you would also like to contribute to my website, then do share your articles or poems at adv.aishwaryasandeep@gmail.com

We also have a Facebook Group Restarter Moms for Mothers or Women who would like to rejoin their careers post a career break or women who are enterpreneurs.

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