Discharge of contract

Sections given in this article pertain to Indian contracts Act. Discharge means termination of a contract. By discharge the rights and obligations of the parties come to an end. The contract may be discharged in any of the following ways:

By performance: (Sec 37) If both parties to the contract have performed what they have agreed to do, the contract is discharged. Performance of obligation by parties to the contract puts an end to the contract.

A party is also released from the contract, where performance of the contract is dispensed with or excused under the provisions of this Act or any other law. A party is, therefore released from performing his part of the contract by law of insolvency on being adjudicated as an insolvent.

The obligations of the parties continue till contract is determined according to its terms.

By death: (Sec 37) Where a contract is personal in character or where personal skill or ability is involved, death of promisor discharges the contract.

Illustration: A promises to paint a picture for B by a certain day, at a certain price. A dies before that date and and therefore contract cannot be enforced either by A’s representatives or by B.

By refusing tender of performance (Sec38): Offer of performance to the promisee shall have the same effect as performance. Therefore, if a party offers to perform his promise and the offer has not been accepted by the other party, the promisor is not responsible for non-performance. He is discharged from all obligations. Therefore refusal to accept offer of performance discharges the party making the offer.
By breach of contract: (Sec39) When a party to a contract has refused to perform, or disabled himself from performing his promise in its entirety, the promisee may put an end to the contract unless he has signified by words or by conduct his acquiescence in its continuance. Breach of contract occurs where a party refuses to perform his part of the promise. The other party then has a right to rescind it.

Refusal to perform the contract must be in its entirety, otherwise the other party would not be justified in putting an end to the contract. What is entirety is a question of fact in each case depending upon what are the important or essential terms of performance of the contract. Refusal to perform any such term will be refusal to perform the contract in its entirety. Refusal to perform must be absolute and without any intention to perform the contract term will be refusal to perform the contract. It must be communicated to the other party to the contract. Breach of contract may be ‘actual’ or ‘anticipatory’.

Actual breach of contract:

The actual breach occurs when during the performance of the contract or at the time when the performance of the contract is due, one party either fails or refuses to perform is obligations under the contract.

Illustrations

(a) A agrees to deliver to B 5 bags of sugar on January 1st . He fails to do so on 1st January. There is a breach of contract by A.
(b) A agrees to deliver to B 5 bags on 1st. January. On 1st January he tenders the sugar to B. But B for no valid reason refuses to accept delivery. This is a breach of contract by B.

Anticipatory breach of contract:

When a party to a contract refuses to perform his part of the contract before the actual time of the performance of the contract is due, it is called an ‘anticipatory breach’ of contract.

Anticipatory breach of contract may be —-

(1) by repudiation of the contract (express renunciation) ; or
(2) by impossibility of performance (implied renunciation).

When a party communicates his inability to perform his part of the contract before the time fixed for the actual performance is due, he is said to have expressly repudiated the contract.

When the breach takes place by either party to the contract by his own voluntary act, which makes performance of the contract impossible, anticipatory breach of contract is committed by impossibility of performance. Here impossibility is created by one party to the contract before the performance is due It is a case of implied renunciation of a contract.