Discharge of contract

CPA-Business-Law-Section-1 BLOCK RELEASE

A contract is said to be discharged (or terminated) when the parties to it are freed from their mutual obligations. In other words, when the rights and obligations arising out of a contract are distinguished, the contract is said to be discharged or terminated. A contract may discharge in any of the following ways:-
1. Discharge performance
2. Discharge Agreement
3. Discharge Frustration
4. Discharge Breach
5. Discharge Operation of Law
Discharge Performance

When a contract is duly performed both the parties, the contract comes to happy ending and nothing more remains. The contract, such a case, is discharged or terminated due performance. But if one party performs his promise, he alone is discharged. Such a party gets a right of action against the other party who is guilty of breach.

Performance of a contract is the principal and most usual mode of discharge of a contract.
Performance may be:
(1) Actual performance; or
(2) Attempted performance or Tender.

1. Actual performance
When each party to a contract fulfils his obligation arising under the contract within the time and in the manner prescribed an amounts to actual performance of the contract and the contract comes to an end or stands discharged

2. Attempted performance or tender
When the promisor offers to perform his obligation under the contract, but is unable to do so because the promise does not accept the performance, it is called “attempted performance or tender”. Thus “tender” is not actual performance but is only at “offer to perform” the obligation under the contract. A valid tender of performance is equivalent to performance.

For performance to discharge a contract, the general rule is that it must be precise and exact.
Circumstances do exist, however, n which a partial performance one party may not entitle the other party to consider himself as discharged, e.g. in cases of substantial performance or of divisible contracts like those in which delivery of goods is to be done in installments: in these cases the performing party is entitled to payment for what has been done him under the contract.

The effect of refusal to accept a properly made ‘offer of performance’ is that the contract is deemed to have been performed the promisor i.e. tenderer and the promise can be sued for breach contract. A valid tender, thus, discharges contract. However, tender of money does not discharge the contract. The money will have to be paid even after refusal of tender.

Discharge Agreement

Where a contract is still executory, i.e. where each of the parties is yet to perform his contractual obligation, the parties may mutually agree to release each other from their contractual obligation: each party’s promise to release the other is consideration for the other party’s promise to release him.

Where one party has fully performed his part of the contract, he may agree to release the other party from his contractual obligation. In this case, however, the discharge is effective only if made under seal or where the party being discharged has furnished consideration for it; otherwise the party giving the discharge will not be bound and the other party remains liable .A unilateral discharge, supported valuable consideration, is known as an Accord and Satisfaction. “The accord is the agreement which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative’

Discharge Frustration

A contract is said to be frustrated if an event occurs which brings its further fulfillment to an abrupt end; and upon the occurrence of the frustrating event the contract is immediately terminated and the parties discharged. But the doctrine of frustration only relates to the future.
This means that the parties are discharged from their future obligation under the contract but remain liable for whatever rights that may have accrued before the frustration. Thus, goods supplied or services rendered before the frustration must be paid for, although the parties are both excused from further performance of the contract.

Parties to a contract are under a duty to fulfill their respective obligations created the contract.
The fact that an event or events may subsequently occur, introducing hardships or difficulties in the performance of the contract is not in itself sufficient to discharge the contract:

It is difficult to determine the frustrating events. Some examples of frustrating events are given below:-

i) Destruction of subject Matter
“In contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing excuse the performance”. This statement of law was made Blackburn J. in the case given below:-
Taylor V. Caldwell (1862)
A let a music-hall to B in order that B might use it for holding concerts on specified days. Before the concerts could be held the music- hall was accidentally destroyed fire. B sued A for breach of contract.
Held: The destruction of the music-hall had frustrated the contract and B’s action could not be maintained.

ii) Death or Incapacity
Just as the destruction of the subject-matter of the contract terminates it, the death or serious indisposition of a party whose personal services were contemplated the contract will similarly terminate it. Thus, if A, a doctor, contracts to care for all my medical needs, his death is a frustrating event which automatically terminates the contract. Again, if A contracts to stage a series of shows during the months of June-September but is in May sentenced to imprisonment for one year, or becomes insane permanently or for a substantial part of the period in question, the contract will similarly be discharged frustration- the frustrating event being constituted the imprisonment or insanity.

ii) Frustration of Common Venture
Where both parties contemplate a particular object as forming the basis of their contract, such object constitutes their common venture. The law is that if the common venture subsequently becomes incapable of fulfillment the contract is frustrated:

Krall V. Henry (1903)
The plaintiff agreed to let a room to the defendant for the day when Edward VII was to be crowned. Though not spelt out in the agreement itself, both parties understood that the purpose of the letting was to enable the defendant view the coronation process. The King subsequently became ill and the coronation was cancelled.
Held: The cancellation of the coronation discharged both parties from their contractual obligation, because the process was the foundation of the contract and its cancellation meant that the substantial purpose of the contract could no longer be achieved.

Discharge Breach

Breach of contract a party thereto is also a method of discharge of a contract, because
“Breach” also brings to an end the obligations created a contract on the part of each of the parties. Of course the aggrieved party i.e. the party not at fault can sue for damages for breach of contract as per law; but the contract as such stands terminated.

A breach of contract may take place when a party:
(i) Repudiates his liability before performance is due.
(ii) Disables himself from performing his promise.
(iii) Fails to perform his obligations.

Discharge Operation Of Law

A contract may be discharged operation of law in certain cases. Some important instances are as under:-

i) Lapse of Time
If a contract is made for a specific period then after the expiry of that period the contract is discharged e.g. partnership deed, employment contract e.t.c.

ii) Death
The death of either party to a contract discharges the contract where personal services are involved.

iii) Substitution
If a contract is substituted with another contract then the first contract is discharged.

iv) Bankruptcy
When a person becomes bankrupt, all his rights and obligations pass to his trustee in bankruptcy.
But a trustee is not liable on contracts of personal services to be rendered the bankrupt.

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