BATCH 2017-19

A Report on

Different modes of discharge of contract

Submitted

In the Partial Fulfilment of

Post Graduation Diploma in Management

Calcutta Business School

TERM 2

Proposed By

Debangan Das 17006

Submitted To Submission Date

Prof. CS (Dr.) Santanu Mitra 25th January 2018

Calcutta Business School

CONTENTS

Serial Particulars Page

no. no.

1 Acknowledgement 3

2 Executive Summary 4

3 Introduction 5

4 Modes of discharge of contract 5-8

5 Case laws and examples 9-15

6 Bibliography and conclusion 16

Acknowledgement

I take this opportunity to express my profound gratitude and

deep regards to our Prof. CS (Dr.) Santanu Mitra for his
exemplary guidance, monitoring and constant
encouragement throughout the course of this project. The
blessing, guidance and help given by him will be with me a
long way in the journey of life on which I am about to
embark.
I also take gratitude to express a deep sense of gratitude to
Dr. Sekhar Chaudhari (Director), Dr. Tamal Dutta Chaudhury
(Principal) for their cordial support, valuable information and
guidance. I am grateful for their cooperation during the
period of this assignment.

Lastly I thank almighty, my parents and friends for their

constant encouragement and faith in me.
 Place: CBS, kolkata

Executive Summary

Men are social animals who live in the so-called societies. It is a

predictable course of nature that every animal such as us who live
in clusters are bound to have misunderstandings. But unlike other
beings, we humans solve them more morally and ethically. Law and
order created by we men have tamed us and bound us within the
walls. Any actions against law are punished accordingly. Hence,
social order and predictability are the gifts of law. If a person
promised to pay you for the work done, or someone promised to
deliver goods for you to another state: how are you to know if those
works will be done as promised, uncertainty arises in every phase of
our life. Hence, to deal with such uncertainties, concepts of
contracts have been developed. This project deals with the various
modes of discharge of contract.
 INTRODUCTION

Contract:

If a person promised to pay you for the work done, or someone promised to deliver goods for
you to another state: how are you to know if those works will be done as promised,
uncertainty arises in every phase of our life. Hence, to deal with such uncertainties, concepts
of contracts have been developed. (The terms of contract are enforceable just within the
boundary it was created in.)

So, what is contract? “An agreement between two or more competent parties in which an
offer is made and accepted, and each party benefits. The agreement can be formal, informal,
written, oral or just plain understood.”

Discharge of contract:

When two parties are relieved from their contractual obligations and they are no longer
bound by contractual relations, it is termed as discharge of contract. The elements of
discharge of contract are mentioned below which will be dealt in detail later.

 discharge by performance- both the parties fulfill the terms of contract and do what they
have agreed to do
 discharge by agreement-Both the parties jointly put an end to contract
 Anticipatory breach- one party refuses to do his part of contract
 Frustration- without the fault of any party the contract is impossible to be carried
out
 Various modes of Discharging of a Contract
 Discharge of a contract means termination of the contractual relations between the
parties to a contract. A contract is said to be discharged when the rights and
obligations of the parties under the contract come to an end. Modes of discharge of
contract

Discharge by Performance
A contract can be discharged by performance in any of the following ways:
(a) By Actual Performance A contract is said to be discharged by actual per-formance
when the parties to the contract perform their promises in accordance with the
terms of the contract.

(b) By Attempted Performance or Tender A contract is said to be discharged by

attempted performance when the promisor has made an offer of performance to
the promisee but it has not been accepted by the promisee.

Discharge by Mutual Agreement

Since a contract is created by mutual agreement, it can also be discharged by mutual
agreement. A contract can be discharged by mutual agreement in any of the
following ways:

a) Novation [Section 62] Novation means the substitution of a new contract for the
original contract. Such a new contract may be either between the same parties or
between different parties. The consideration for the new contract is the discharge of
the original contract.

(b) Rescission [Section 62] Rescission means cancellation of the contract by any party
or all the parties to a contract.

(c) Alteration [Section 62] Alteration means a change in the terms of a contract with
mutual consent of the parties. Alteration discharges the original contract and creates
a new contract. However, parties to the new contract must not change.

(d) Remission [Section 63] Remission means acceptance by the promisee of a’ lesser
fulfillment of the promise made. According to Section 63, “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.”

(e) Waiver Waiver means intentional relinquishment of a right under the con-tract.
Thus, it amounts to releasing a person of certain legal obligation under a contract.

Discharge by Operation of Law

A contract may be discharged by operation of law in the following cases:

(a) By Death of the Promisor A contract involving the personal skill or ability of the
promisor is discharged on the death of the promisor.

(b) By Insolvency When a person is declared insolvent, he is discharged from his

liability up to the date of his insolvency.
(c) By Unauthorised Material Alteration If any party makes any material alteration in
the terms of the contract without the approval of the other party, the contract
comes to an end.

(d) By the Identity of Promisor and Promisee When the promisor becomes the
promisee, the other parties are discharged.

Discharge by Impossibility of Performance

The effects of impossibility of the performance of a contract may be discussed under
the following two heads:

(a) Effects of Initial Impossibility

(b) Effects of Supervening Impossibility

(c) Declaration of War The pending contracts at the time of declaration of war are
either suspended or declared as void.

(d) Change of Law The contract is discharged if the performance of the contract
becomes impossible or unlawful due to change in law after the formation of the
contract.

Discharge by Lapse of Time

A contract is discharged if it is not performed or enforced within a specified period,
called period of limitation. The Limitation Act, 1963 has prescribed the different
periods for different contracts, e.g. period of limitation for exercising right to recover
a debt is 3 years, and to recover an immovable property is 12 years. The contractual
parties cannot exercise their rights after the expiry of period of limitation.

Discharge by Breach of Contract

A contract is said to be discharged by breach of contract if any party to the contract
refuses or fails to perform his part of the contract or by his act makes it impossible to
perform his obligation under the contract. A breach of contract may occur in the
following two ways:

(a) Anticipatory Breach of Contract Anticipatory breach of contract occurs when

party declares his intention of not performing the contract before the performance
is due.

(b) Actual Breach of Contract Actual breach of contract occurs in the follow-ing two
ways:

(i) On Due Date of Performance: If any party to a contract refuses or fails to perform
 his part of the contract at the time fixed for performance, it is called an actual
breach of contract on due date of performance.

1. Performance:

When parties fulfill what they promised to do, contracts get discharged.
Tender of performance:
When a party has unconditionally offered to perform a contract and such tender is
accomplished, the contract gets discharged. If the party refuses to perform the task, the party
making the tender has the right to sue.
Types of performance:
Complete Performance
When the contractual obligations are fulfilled exactly, the performance is complete.
Contract note: “Ten days after the ship Governor Parry,
myself master, arrives at liverpool, I promise to pay to Mr.
Fact T. Cutter the sum of thirty guineas, provided he proceeds,
continues and does his duty as second mate in the said
Cutter v Powell ship from hence to the port of Liverpool. Kingston, July
(1795) 31st, 1793.”

Mr. T. Cutter died when three- quarter journey

completed.
Held Cutter’s widow could claim nothing because of incomplete
performance.

However, there are some exceptions to this law. They are mentioned below:

1.1.Substantial performance
Insignificant defects can be ignored being `de minimis’.

When there is only slight difference for what is done and what is agreed to, the
contract cannot be considered breached. However, compensations can be claimed
accordingly.

Mr. Isaacs had to decorate and furnish Mr.

Hoenig’s flat for £750. When the work
 Fact completed, problem arose with a wardrobe and
bookcase which would cost £55 to fix.
Hoenig v Isaacs (1952). £350 was outstanding which Mr. Hoenig
refused to pay.
The work was done with merely bits of
Held damages. Therefore compensation for damage
could be claimed.

1.2.Partial performance
If the contractual terms have been partially fulfilled and the other party agrees upon it
then, the defaulting party will be entitled to claim his share for the work accomplished.

Fact Christy had earlier promised that he would carry Row’s

coal from Shields to Hamburg. Due to war, Christy could
Christy v Row not. Row asked Christy to send it to another destination.
(1808)

Held Christy was able to claim for partial performance

1.3.Quantum Meruit:
If a party creates hindrance and stops the other party from fulfilling the contractual
liabilities, other party is entitled to claim for compensation.

Fact Planche was to write a book 'Costume and Ancient

Armour' for a series and he was to receive £100 on
completion. He had completed the necessary research
Planche v Colburn but the book was yet to be written. The publisher decided
(1831) to abandon the series. Planche sued the publisher for
breach of original contract.
Held Original contract was discharged by the defendant and no
other contract was there to substitute it. Plaintiff obtained
50 guineas for reasonable remuneration on a quantum
meruit.
 1.4.Severable Contracts
If a contract requires specific payments different stages of performance, the party
can acquire payments due when each stages of job is accomplished else the party can
sue the other.

Roberts v Havelock Fact The contract between the two parties did not expressly
(1832) state when the payment was to be made. The shipwright
who agreed to repair the ship chose not to work later.
Held The shipwright was not legally bound to perform his job
until he claims some payment.

2. Agreement:
Parties are free to enter into a contract. Similarly, they are free to negotiate their way out by
releasing themselves from contractual obligations. In such cases they form a new contract of
mutual release which in turn terminates the old contract. However, parties should not have any
outstanding obligations that must be fulfilled from the old contract else valuable considerations
are required to be made. Alternatively, release can be executed under seal.
 Fact Employment contract “Sack me!”
Edgar v Lawler Bros
Held contract terminated by mutual agreement

Discharge by Mutual Agreement

2.1.Novation:

When a new contract substitutes the old contract, the consideration for new contract
automatically discharges the original one. It can even involve the substitution of new
party who was not involved in contractual obligation.
However, Novation cannot be compulsory. It should be done by mutual consent. The
new contract must be a valid one else the old contract revives.
For example:
A owes money to B under a contract. A, B and C form another contract which makes
C the debtor. Thus the old contract between A and B gets cancelled and a new
contract is formed between B and C.

2.2.Rescission:

Rescission means cancellation. When any party or all the parties cancel the contract, it
gets discharged.
Contract may be cancelled before the date of performance by mutual agreement. Thus
the two parties will no longer be bound by contractual obligations.
For example:
X promises to sell and deliver goods on 7th September to Y. Y promises to pay the
money on 30th September. X does not deliver the goods. Y may rescind the contract.

2.3.Alteration:

The term itself suggests that there occurs change in the terms of the contract with mutual
agreement. Alteration of contract discharges the original contract but the parties
performing the contract remain unaltered.
 For example:
X promises Y to sell and deliver goods to in his warehouse. Later X and Y mutually
come to an agreement that the goods should be delivered to Z’s warehouse. This
terminates the old contract and the new contract comes into effect.

2.4.Remission:

Remission means acceptance of lesser amount of money than that was first decided for
lesser fulfillment of contractual obligations.
For example:
Y promises to paint Z’s house. Z promises to give him $100. Later when the work was
completed, they reached to an agreement for $75. This payment is the discharge of the
contract.

3. Breach:
Any Failure to fulfill the terms in a contract can be termed as breach of contract. A
contract can be breached if:

 A party does not fulfill terms he agreed to fulfill

 A party does only a part of what he agreed to
 The task is badly done.

A breach of contract may occur in two ways.

3.1.Anticipatory breach of contract:
Either party may by words or action before the performance is due may show no
intention to perform his part of the legal obligation.
Party may declare his intention of not performing in the following ways:
 When a party bound by contract refuses to perform his duty.
 When a party disables himself from performing his promise.

However, only breach of condition will discharge the innocent party.

Hochster v De La Fact Before the time of performance, the employer told the
Tour (1853) employee that he would not require performing any
service. The courier sued for damage immediately.

Held The court held that he was entitled to do so

A charter party provided that ship be sent to Odessa and then

take a cargo from charter agent. When the ship arrived, the
charter’s agent could not provide. The ship master demanded
Avery v Bowden but then war broke out. The charter sued the ship.
(1855)
The agent’s action amounted to anticipatory repudiation, but
the ship master kept the contract alive until

3.2.Actual breach of contract:

A party may break a condition or in fact break every terms of the contract resulting in
subsequent failure of continuation of the contract. Actual breach may occur in following
circumstances.
 On Due date of performance- if party fails or refuses to perform at given
time for performance
 During the course of performance- If half of the work is done while the
party fails to complete the rest.

Advertising contractor had a contract with the garage

proprietor to display advertisements for his garage for three
years. The proprietor repudiated the agreement and
cancelled on the dame day. The advertising contractor
White & Carter v refused and performed their obligation. They sued for
McGregor [1961] contract price.
The House of Lords held, by a majority of 3:2 that advertising
contractor was entitled to the full contract price.

Maize buyers rejected maize on a ground that was considered

insufficient.Three years later, they found out that the maize
was not shipped in the given time. They therefore sought
Panchaud Freres SA v rejection in this ground. It was stated that the buyers sought
Establissments late delivery as a reason for rejection of contract though they
General Grain Co did not lead the sellers to believe so.
[1970]
 The court of Appeal held that they were not entitled to do so.

4. Frustration:
When the failure to perform the contractual obligation is the result of events beyond one’s
control, the contract is frustrated. In such a case, even advance payments made are easily
refundable and the advance work done in preparation for performance of contract can be
reimbursed.
For frustration of contract to occur, frustration events must satisfy some conditions.
a) The terms of contract cannot be carried out because it has become illegal due
to changes in the law.
Fact The two parties had signed a contract for sales of wheat.
Due to wartime emergency, government requisitioned
Re Shipton, the wheat for control of food supplies. The goods was yet
Anderson and to be delivered and ownership had yet to be passed on to
Harrison Brothers the buyer under the terms of contract
[1915]
held Seller was excused from further performance of contract.
It was impossible to deal with goods that are now owned
by the government.

b) Essential elements to perform the contract has been destroyed

Fact The concert hall that was booked for performance got burned
Taylor v. down by the fire. The claimant sued for the expenses incurred
Caldwell in advertising the concert
(1863) Held The court held that the contract was frustrated by the incident.

c) The person performing the contract is unavailable due to illness or any other
reasons
 The doctor certified that the drummer (claimant) could no
Fact
Condor v. The longer play for seven nights a week instead he should opt
Barron Knights for four nights a week.
(1966) Held The contract was frustrated due to his illness, therefore it
properly terminated.

d) Certain circumstances have now changed. Therefore, it is impossible for the

contract to be carried out.
Tsakiroglou & Co. Ltd. Was supposed to ship groundnuts
from Sudan to Hamburg, Germany via Suez Canal. But,
Fact the defendant did not ship the groundnuts making an
excuse that the canal was closed because the canal was
Tsakiroglou & Co. closed.
Ltd v. Noblee Thorl
(1962) Held The contract is not frustrated because it is not the only
route used for transport of goods. The ship could go via
Cape of Good hope, though this may increase the
expenses. But, the contract cannot be termed frustrated
just because the task got harder.

e) Commercial frustration
Fact Jackson (charterer) hired a ship for immediate load of
cargo as he had to set off to san Francisco. The ship was
damaged so it had to send for repair. Jackson cancelled to
Jackson v Union contract due to delay in work. Hirer took actions claiming
Marine Insurance breach of contract
1874

Held There was commercial frustration therefore Jackson was

relieved.

The contract will not be held to be frustrated if:

a) There is a possibility to perform the contract but the circumstances become more
difficult and expensive.
b) Due to individuals action, the contract has become impossible to be carried out
i.e. self-induced frustration;
c) If a clause has been included in the contract to cover any frustration that may
occur; Wong Lai Ying v Chinachem Investment Co (1979)
d) The parties have foreseen that the contract may become impossible to be
carried out.
 Conclusion:

A contract has always been considered a compact between two or more parties. Till
date many contracts have been made and many have been broken. Law has always
stood to help the innocent. But the law too had problems, pragmatic and theoretical.
Many complications have aroused through these years and exceptional cases have
puzzled judges. And we see some landmark cases to justify that solutions have been
discovered and will continue.

Bibliography

P C Tulsian,(2007). Business Law. Tata McGraw-Hill Publishing Company Limited: New

Delhi

Website: “Cutter v Powell. Available at:http://en.wikipedia.org/wiki/Cutter_v_Powell

[modified on 24 July 2010 at 08:12] [Accessed on 15 October]
Website: “Discharge of contract. Available at: http://legal-
dictionary.thefreedictionary.com/Discharge+of+a+contract [Accessed on 20 October]
Website: “Lectlaw.com. Contract. Available at: http://lectlaw2.securesites.net/def/c123.htm
[Accessed on: 19 October 2010]