Short Notes on Discharge of Contract Consiquency

7/30/2019 Short Notes on Discharge of Contract Consiquency

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Short notes on Discharge of Contract ConsiquencySUDHIR SINGH

Discharge of contract means termination of the contractual

relationship between the parties. When the rights and obligationsarising out of a contract are extinguished, the contract is said to bedischarged. A contract may be discharged either by the acts of theparties or the operation of law. Act of parties may take different formslike performance, agreement, breach, etc. while operation of lawincludes death, insolvency, etc.

A contract may be discharged in any of the following ways:

1. By performance,

2. By death,

3. By Lapse of time,

4. By Breach of Contract,

5. By Impossibility,

6. By agreement or consent, and

7. By operation of law.

1. Discharge by Performance:

This is most pleasant end of a contract when a contract is dulyperformed by both the parties and nothing more remains to be done.But if only one party performs his promise, he aloes is discharged and

the guilty party may be taken to the task for breach of contract. Theperformance may be, either actual or attempted i.e. tender.

Actual performance must be complete, precise and according to theterms of the agreement. Most of the contracts are performed in thismanner.

Where a promisor has made an offer of performance (tender), and theoffer has not been accepted, the promisor is not responsible for non-

performance, nor does he thereby lose his rights under the contract. If


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there are several joint promisors, the offer of performance to any oneof them shall be sufficient.

Performance shall be given by the promisor himself, in contracts

requiring use of personal skill, e.g. painting, dancing or promise tomarry, etc. In such a case death of the promisor puts an end to thecontract. Unless a contrary intention appears from the contract, apromise can be enforced against and only by the legal representativesof the parties. Ordinarily, parties must perform their obligations at thestipulated time. But if the time is of the essence of the contract, then afailure to perform at the time specified, renders the contract voidableat the option of the opposite parties.

2. Discharge by Death:

Contracts of a personal nature come to an end by the death of thepromisor. In other cases the rights and liabilities pass on to the legalrepresentatives of the deceased. But they are liable to the extent of theproperty inherited by them.

3. Lapse of Time:

The limitation act provides that a contract should be performed withina specified period i.e. period of limitation. If the contract is notperformed, and if no legal action is taken by the promisee within theperiod of limitation, he is deprived of his remedy at law. In otherwords, the contract in such a case is terminated. For example, for theprice of goods sold and delivered, where no fixed period of credit isagreed upon, the payment should be made or a suit instituted torecover it within 3 years from the date of delivery of the goods. If the

payment is not made and the creditor does not file a suit against thebuyer for the recovery of the price within the period of 3 years, thedebt becomes time-barred and irrecoverable.

4. Breach of Contract:Breach of contract means refusal of performance by a party. Where aparty to a contract has refused to perform, or disabled himself fromperforming his promise in its entirety, the other party or aggrieved

party may put an end to the contract unless he has waived his rightexpressly or impliedly. For instance, X, a singer enters into a contract


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with Y to sing at his theatre every night during next month. Y agreesto pay him Rs. 250 for each night. On the 10th night, X willfullyabsents herself from the theatre. Y can put at an end to the contract.

Breach of contract may be of two kinds;

(1) Anticipatory breach; and

(2) Actual Breach.

'Actual Breach' occurs when a party fails to perform his obligationupon the date fixed for performance by the contract, as for example,where on the appointed day, the seller does not deliver the goods or

the buyer refuses to accept the delivery. It is to be noted that actualbreach of contract due to non performance can only arise when thetime for performance has arrived. Actual breach entitled the party notin default to elect to treat the contract as discharged and to sue theparty at fault for damages for breach of contract.

Anticipatory breach of Contract:Anticipatory breach of contract takes place before the date of actualperformance. The promisor may either inform the promisee that he

will not perform the contract or may do an act which is inconsistentwith the contract or renders the performance impossible. For example,A agrees to employ B as a clerk, the service to commence from2

ndFebruary, 1989. On 27

thJanuary, 1989, he informs B that his

services will not be required.

This is an 'anticipatory breach of contract' by expressing repudiationby A.

Similarly, A promises to marry B on 'Kartiki Purnima 1989' butbefore this date, A marries C. Here A's voluntary act has made theperformance of his obligation towards B impossible, and therefore'anticipatory breach by impossibility" is committed by A.

Section 39 deals with anticipatory breach of contract. Accordingly,"when a party to a contract has refused to perform or disabled himselffrom performing his promise in its entirety, the promisee may put an

end to the contract, unless he has given by words or conduct, hisacquiescence in its continuance". But if the promisee acquiesces in the


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continuance, by conduct or words of mouth or condones breach ofcontract or waives his rights, then the contract continues.

Consequences of Anticipatory Breach :

When anticipatory breach takes place, the aggrieved party can takethe following steps:

(i) He may either treat the contract as rescinded or sue the other partyfor damages for breach of contract immediately without waiting untilthe due date of performance i.e. he can file a suit for damages orspecific performance or injunction, etc.

Huckster vs De La Tour. In that case, the defendant agreed to engagethe plaintiff as his attendant on a continental tour from June 1st, for 3months at a salary of $10 per month. The defendant then changed hismind and wrote to the plaintiff before that date, that he would notrequire his services. It was held that the plaintiff can put an end to thecontract even before June 1st, and bring a suit for damages. He wasnot bound to wait till the date of performance.

Forst vs Knight. In that case, K promised to marry F after the death of

his father. When the father was still living, K announced his intentionof not fulfilling the promise on his father's death and broke all theengagements. F without waiting for the father's death at once broughtan action against the breach of a contract. It was held that F couldclaim damages.

(ii) He may treat the contract as still operative and subsisting and waitfor the time of performance, when the contract is to be executed, and

then hold the other party liable for the consequences of non-performance.

If this course is adopted, the contract remains alive upto the due date.The promisor may in such a case change his mind and perform thecontract. But if in the intervening period, any superveningimpossibility happens which discharges the contract legally, therepudiating party can take advantage of such eventuality and theaggrieved party loses his right to sue for damages.


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Avery vs. Bowden. In that case, B chartered A's ship and agreed toload it with a cargo at Odessa within 45 days. When the ship reachedOdessa, B was unable to supply the cargo. A did not accept the refusaland continued to demand the cargo. Before the expiry of 45 days, theCrimean War broke out rendering the performance of the contractimpossible. Held, the contract was discharged and A could not sue fordamages.

5. Impossibility of Performance:

A contract must be capable of being performed. Section 56 provides"agreement to do an act impossible in itself is void". This rule is basedon two principles:

1. Lex non cogit ad impossibilia i.e. Law does not recognize theimpossible.

2. Impossibilia nulla obligation east i.e. An impossible act does notcreate any obligation.

Impossibility discharges the parties to a contract. Even if the actbecomes impossible after formation of contract, the contract is

rendered void. Impossibility falls in the following two categories:

1. Initial Impossibility:

Initial impossibility means impossibility at the time of formation ofthe contract. It may be known or unknown to the parties. Ifimpossibility is known to the parties, the agreement is void ab initio.But where the impossibility is known to the parties, the contractwould become void because of mutual mistake of fact whenever suchimpossibility is discovered.

2. Subsequent Impossibility:

Sometimes a contract is capable of being performed when enteredinto, but some subsequent event renders the performance impossible.In such a case also, the contract become void. The subsequentimpossibility may arise (i) by some event beyond the control of theparties, or (ii) by some act of the promisor or promisee.


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Doctrine of Supervening Impossibility :

In certain circumstances, subsequent impossibility makes the contractvoid. Supervening impossibility is an excuse for the non-performance

of a contract in such cases. These cases are as follows:

1. Destruction of subject matter of the contract:

Where the subject -matter of the contract is destroyed before thecontract is performed the contract is discharged.

Howell vs Coupland. In that case, C contracted to deliver a specificcrop of potatoes. The crop was destroyed by a pest through no default

of the party. It was held that the contract was discharged.V.L. Narasu vs. P.V.S. Iyer. In this case, a contract was entered intobetween a purchaser and a theatre owner to show a picture at thelatter's theatre for a particular period and share the profits. The theatresubsequently had to be demolished on account of the authoritiesdeclaring it to be defective and unsafe. The theatre owner had noknowledge of the defective and unsafe condition of the building, andon account of demolition, the show was interrupted. It was held that

the continued existence of the theatre was a fundamental basis of thecontract and there was a frustration of that fundamental character. Assuch, the contract was held to be discharged.

Taylor vs. Caldwell. A music hall was agreed to be let out for a seriesof concerts on certain days. The hall was destroyed by fire before thedate of the first concert. The plaintiff sued the defendant for damagesfor the breach of contract. It was held that the contract had become

void and the defendant was not liable.

Teatem Ltd. vs. Gamboa. It was decided that, if a factory premises onwhich machinery is to be installed is destroyed by fire, or a ship undera charter party is seized by a foreign government, the contract isdischarged.

2. Death or personal incapacity of the parties:

Where the performance of the contract depends on the personal skillor qualification of a party, the contract is discharged on the illness or


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incapacity or death of that party. The man's life is an impliedcondition of the contract.

Robinson vs. Davison. In this case, an artist undertook to perform at a

concert for a certain price. Before she could do so, she was takenseriously ill. It was held that she was discharged due to illness.

Similarly, in a case, two parties contracted to marry each other.Before the time fixed for marriage, a party became mad. The contractbecomes void in such case due to the personal incapacity of theparties.

3. Change of law:

A subsequent change in law may render the contract illegal and insuch cases, the contract is deemed discharged. The law may actuallyforbid the doing of some act undertaken in the contract, or it may takefrom the control of the promisor something in respect of which he hascontracted to act or not to act in a certain way.

Nor Bux vs. Kalyan, A.I.R. A agreed to transport goods of B fromplace X toY. Subsequently, the trucks of A were requisitioned by the

Government under a statutory power. Here the contract wasdischarged due to change in law.

Shipton Anderson & Co. vs. Reschipto. A specific parcel of wheatwas sold in a warehouse. Before the delivery was given, the wheatwas requisitioned by the Government under statutory power.

4. Declaration of War:

Contracts entered into during war with an alien enemy are voidabinitio. When peace returns, they remain still void and of no effect.But contracts entered into before the declaration of war, remainsuspended during the continuance of war, if it is for a short period andmay be revived and enforced at the end of the war. But if warcontinues for a sufficiently longer period of time and the party wouldbe discharged from performance on the ground of impossibility.

5. Non-existence or non-occurrence of particular state of things:


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If a contract is entered into on the basis of the continued existence ofa certain state of things, the contract is discharged, if the state ofthings changes or ceases to exist.

Krell vs. Henry. Henry hired a room from Krell for two days towitness the coronation procession of King Edward VII. He knew theobject of the contract, the procession was cancelled. It was held thatHenry was excused from paying rent for the room, as the existence ofthe procession was the basis of the contract and its abandonmentdischarged the contract.

Cases not Covered by Supervening Impossibility :

It may be stated that impossibility to perform arising subsequently tothe agreement will not, as a rule, relieve the promisor fromperforming his part in all cases, because "where there is a positivecontract to do a thing, not in itself unlawful, the promisor mustperform it or pay damages for not doing it, although in consequenceof unforeseen accidents, the performance of his promise has becomeunexpectedly burdensome or even impossible". Thus, in order toexcuse a person from the performance of a contract, there must be

physical or legal impossibility. In the following cases a contract is notdischarged on the ground of supervening impossibility.

1. Difficulty of Performance:

A contract is not discharged merely because its performance hasbecome difficult, or more expensive or less profitable than stipulatedat the time of its formation. As a rule, difficulty is no excuse fromperformance.

Blackburn Bobbins Co. Ltd. vs. Allen & Sons. In this case, A sold acertain quantity of Finland timber to B to be delivered between Juneand September, 1914. No deliveries were made before August whenwar broke out and transport was disorganized so that A could notbring any timber from Finland. Held, impossibility of getting timberfrom Finland could not excuse performance of the contract as B wasnot concerned with the way in which A was going to get timber from

Finland.


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2. Commercial Impossibility:

Again, a distinction has to be made between absolute impossibilityand commercial impossibility. Commercial impossibility means that

the performance of the . contract is not impossible but it has onlybecome costlier in terms of money or labour. A contract is notdischarged merely because expectation of higher profits is notrealized, or the necessary raw material is not available at normal ratesbecause of the outbreak of war, or there is sudden depreciation ofcurrency.

Karl Etlinger vs. Chagandas & Co. promised to send certain goodsfrom Bombay to Antwerp in September. Before the goods were sent,war broke out and there was a sharp increase in shipping rates. Held,the contract was not discharged.

Sachindra vs. Gopal. A contracted to supply certain goods to B. Dueto the outbreak of war, the market price of the goods suddenly shotup. Held, A is not discharged from performance of the contractmerely because the outbreak of the war has rendered the contractunprofitable.

Davis Contractors Ltd. vs. Fareham. In that case there was a contractto build 78 houses for a council for a fixed price of Rs. 94421 and tobe completed with 8 months. Due to labour strikes and shortage ofcertain materials, it took 22 months to complete instead of 8 monthsand at a cost of Rs. 115000. The contractor contended that thecontract has been frustrated and that they were entitled to a claim on aquantum merit for the cost actually incurred by them. It was held that

the performance of the contract was more onerous but did notdischarge the agreement.

3. Failure of third party relied upon by the promisor:

Where a contract could not be performed because of the default by athird party on whose work the promisor relied, it is not discharged.

Harnadrai Fulchand vs. Pragdas. A, a wholesaler, entered into acontract with B for the sale of a certain types of cloth to be produced


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by C, a manufacturer of that cloth. C did not manufacture the cloth.Held, A was liable to B for damage.

Allopi Parshad vs Union of India. In that case, A was acting as the

agent of the Government of India for purchasing edible oils for theuse of Army personnel. The rates were fixed by the Government ofIndia for the supply of the edible oils. During the period ofperformance of the contract, Second World War broke out, and therewas abnormal rise in price. A demanded revision of supply rates butreceived no response. He kept that A was entitled to claim only thesupply rates contracted for and nothing more than that.

4. Strikes, Lock-outs, Riots, Civil disturbances etc:

A strike by the workmen or a lockout by the employer also does notexcuse performance because the former is manageable (as labour isavailable otherwise) and the latter is self induced. Where theimpossibility is not absolute or where it is due to the default of thepromisor himself, section 56 would not apply. As such, these eventsalso do not discharge a contract.

Hari Laxman vs. Secretary of State for India. The lessor of certain saltpans, failed to repair them according to the terms of the contract, onthe ground of a strike of the workmen. It was held that a strike by theworkmen was not sufficient reason to excuse performance of a termof the contract.

Jacobs vs. Credit Lyonnais. In that case, a contract was entered intobetween two London merchants for the sale of certain goods whichare to be imported from Algeria. Due to riots and civil disturbances in

Algeria, the goods could not be imported. Held, this was no excusefor non-performance of a term of the contract.

Budgett vs. Binnington. The unloading of a ship was delayed beyondthe date agreed with the ship-owners owing to a strike by dockworkers. It was held, that the ship-owners were entitled to damages,the impossibility of performance being no excuse.

5. Partial impossibility:


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When a contract is entered into for several objects, the failure of oneof them does not discharge the contract.

H.B. Steam Boat Co. vs. Hutton. In that case, the Steam Boat Co.

agreed to let a boat to H to view, (i) the naval review at thecoordination of Kind Edward VII, and (ii) to cruise round the fleet.Due to the illness of king, the Naval review was cancelled, but thefleet was assembled and the boat could have been used to cuisseround the fleet. Held, the contract was not terminated as the navalreview was not the sole basis of the contract.

6. Doctrine of Frustration: Under the English Law, where the objectof a contract can no longer be carried out, the contract is said to befrustrated and the parties are discharged. Thus for impossibility ofperformance the term 'frustration' is used in the English law. Thisconcept was explained in the case of 'Cricklewood Property Limitedvs. Leighton's Investment Trust Ltd', in the following words:

"Frustration may be defined as the premature determination of anagreement between parties lawfully entered into.................. owing tothe occurrence of an intervening event or change of circumstances so

fundamental as to be regarded by the law as striking at the roots of theagreement, and as entirely beyond what was contemplated by theparties when they entered into the agreement."

Paradine vs Jane Aleyn. In that case, P leased a plot of land to J. Psued J for rent due upon the lease. J pleaded "that a certain Prince, analien enemy to the king and Kingdom had invaded the realm with anhostile army of men, did enter upon J's possession and expelled him

and held him out of possession of the property, whereby he could nottake the profits."

The plea was that the rent was not due because the lessee had beendeprived, by event beyond his control, of the profits from which therent should have been given.

The Court held that this was no excuse. It was observed that "wherethe party by his own contract creates a duty or charge upon himself,

he is bound to make it good............................. and therefore if the


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lessee covenants to repair a house, though it be burned by lighteningor thrown down by enemies, yet he ought to repair it".

In Taylor vs. Caldwell, also the Court observed that "where there is a

positive contract to do a thing, not in itself unlawful, the contractormust perform it or pay damages for not doing it although inconsequence of unforeseen events, the performance of his contracthas become unexpectedly burdensome or even impossible". Thus,impossibility was no defence to an action for breach of contract.

According to the implied Terms theory', a Court can infer impliedterms or conditions in a contract and the surrounding circumstancesthat a condition, which was not expressed was the foundation uponwhich the parties contracted, and if that condition is not fulfilled, thepromisor is excused from performance. [F.A. Tamplin Steamship Co.Ltd. vs. Anglo Mexican Petroleum Products Co. Ltd.].

Though the 'Implied Terms Theory' fulfilled its historical purpose, itis now regarded as an inadequate explanation of the doctrine offrustration. It is because the theory provides that the Court has to inferwhat the parties would have provided if they had thought of the

contingency. The Court is therefore expected to perform animpossible act of speculation. It is required to infer the intention ofthe parties not from what they have said, but from what they have leftunsaid, a task, which has been described as preposterous. It is becauseof this reason various other theories like (a) disappearance of thefoundation of the contract theory, (b) the just and reasonable solutiontheory, and (c), change in the obligation theory have been evolved bythe Courts. These theories have attempted to define the doctrine of

frustration on different bases.

Short Notes on Discharge of Contract Consiquency

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