DISCHARGE OF A CONTRACT
Definition:
When rights and obligations arising out of a contract come to an end, the contract
is said to be discharged or terminated.
Types of Discharge:
1) Discharge by Performance:
It is natural mode of discharge of Contract.
Parties perform their respective promises, as per contract. On fulfillment
of these promises the contract gets discharged.
If only one of the parties to contract performs then only he is discharged.
Types of Discharge by performance:
a) Actual Performance
Parties perform the obligations, arising from contract.
b) Tender Performance:
One of the parties offer to perform but the other party does not
accept the offer.
It is offer of performance.
It is not actual performance but equivalent to actual performance of
the party making this offer.
2) Discharge by Agreement:
Contract can be discharged by the fresh agreement between the same parties.
Different Ways to Discharge the Contract by agreement:
a) Novation:
It means the replacement of existing contract with new
contract.
In novation major alteration is must.
In novation parties may also change.
A novation, new contract discharges the old contract.
b) Alteration:
One or more terms of the contract changes.
Alteration results in discharge of original / Old Contract.
c) Recission:
Cancellation of Contract by mutual consent.
d) Remission:
Acceptance of lesser amount or lesser fulfillment of a
promise than the right given in the contract. E.g: Agha
Owes Aslam Rs.25,000/-, later Aslam agrees to accept
Rs.20,000/- for full discharge of liability.
e) Waiver:
Intentional abandonment of a right, which a person is
entitled under a contract.
Example: Amjad asks his tailor to make a shirt. Later
Amjad stops him to do so. Tailor accepts. So contract is
terminated by waiver.
3) Discharge by Subsequent Impossibility:
There are two types of Impossibility in a contract
a) Initial Impossibility:
Agreement to do impossible Act is void “ab-initio” (from
beginning).
b) Subsequent Impossibility:
When contract was made it was performable, later becomes
impossible or unlawful, hence results in being void.
This is also called Doctrine of frustration Or Doctrine of
Supervening impossibility.
4) Discharge by lapse of time:
Limitation Act 1908 lays down a contract should be performed within a
specified period. If it is not performed in time and promise does not take
legal action within time of limitation, he is deprived of remedy at law. The
Contract is terminated.
5) Discharge by operation of law:
a) Insolvency:
When court declares a person insolvent then he is
discharged from liabilities arising out of contract. Rights
and duties transferred to the Official Receiver.
b) Merger:
Inferior right merges into superior right for the same
person.
E.g: A part time computer operator has been given the
permanent job in the same organization. So contract of
being a part time computer operator discharged.
c) Un authorized Material Alteration:
Material Alteration made by one party without consent of
other.
6) Discharge by Breach of Contract:
Contract must be performed according to terms otherwise breach of
contract takes place. In such case the aggrieved party may get some
right like excuse of performance, right to sue etc. which are
discussed later.
E.g: Amjad promises to sell his house to Baqir on 1 st December but
he did not, so this is breach of contract.
REMEDIES OF BREACH OF CONTRACT
When a party breaks the contract by refusing to perform the performance, the breach of
contract takes place.
Following are the Remedies for breach of contract
1) Suite for cancellation of the contract
a) The aggrieved party has right, if he wants to file a suit against the guilty
party for rescission (Cancellation) of contract.
b) When contract is rescinded by court, the aggrieved party is free from all
obligations towards contract.
Example:- A promises to supply Books on 20th May, B shall pay money
at its receipt. But A did not supply so B can sue to recind the contract and
can claim damages.
2) Suit for Damages
Aggrieved party can sue for damages. Damages are monetary compensation for
loss incurred due to breach of contract.
Kind of Damages
1. Ordinary Damages
Damages arise naturally from breach of contract. e.g. A promise to pay B
an amount of money on a specific day. A did not pay. In the result B could
not pay his debt. So A is liable for principal amount and interest.
2. Special Damages
Damages arise under special circumstances. This arises on special
contracts expecting large profits but breach resulted in large losses.
3. Exemplary Damages
Damages awarded to punish the guilty party for breach and not to
compensate the injured party.
4. Liquidated Damages
If parties fix amount of damages for the breach of contract at the time of
formation, it is liquidated damages
5. Nominal Damages
Court has discretion. When the aggrieved party suffers no loss in case of
breach of contract, the court can offer him nominal damages in recognition
to his rights.
3) Suit for Quantum Meruit
It means remedy received in appropriation to work done or as much as is earned.
Example: A contracted B for manufacturing of Eight Chairs. After completion of
first chair, A stopped B to construct. Now B can get reasonable compensation to
work done.
4) Suit for specific performance
It means actual carrying out of contract by the party who has breached the
contract. Where there is no adequate remedy for the breach. Court orders specific
performance. It means Performance of the original contract. Aggrieved party can
suit for it.
5) Suit for injunction
It means restraining a person to do something which he promised not to do. It is
Negative form of Specific performance.
Example: X contracted that he will act as model for Y only and for no else. But
X contract with Z as well. So court can restrain X to act for Z. This is order of
injunction.
