Author: Utkarsh Raj, NMIMS, Chandigarh
Introduction
An agreement enforceable by Law is a contract. When the parties enter into a valid contract with a valid consideration and without any unlawful object, the next stage is the fulfilment of the object of the contract that parties had in mind when they were entering into the contract. When both the parties fulfil their part of the contract then the contract is said to be discharged. The simplest form of discharge of contract is by performing the object but there are other ways too in which a contract can be discharged.
Discharge by performance
When two parties enters into a contract, both the parties are bound to perform his part of the obligation. So when both the parties perform their duties then the contract come to an end and it is believed to be discharged.
Illustration: A and B entered into a contract that A will supply 500kg of rice to B on a certain date and in return B will pay Rs50,000 to A. So when A will deliver the 500kg of rice on decided date and B will give the money to A then the contract will said to be discharged.
Section 37 of Indian contract act states that there is an obligation of parties to perform or offer to perform their promises until and unless the performance that needs to be performed is excused under the provisions of this act.
Bhuneshwar v. Gamman Das: The court highlighted the importance of Section 37 of the Indian Contract Act, 1872, which mandates that parties to a contract must perform their obligations unless discharged. The case reinforced that legal representatives must be substituted upon the death of a party to ensure enforceability. Since the plaintiff failed to substitute the deceased defendant’s legal representatives, the appeal abated, and the trial court’s dismissal of the suit was restored. This ruling emphasizes that contractual obligations bind both parties and their successors unless properly challenged or discharged.
Impossibility of performance and frustration
Initial impossibility is mentioned in section 56 of the Indian Contract Act, it stated that any agreement that is made to do an act which is impossible in itself is void.
Illustration: An agreement to bring the moon for life partner on her birthday, is impossible to perform, is void.
South East Asia Marine Engineering And Constructions Ltd. (Seamec Ltd.) v. Oil India Limited: SEAMEC Ltd. had a contract with Oil India Ltd. for drilling services. During execution, the Government increased fuel prices, making operations costlier. SEAMEC Ltd. claimed frustration of contract under Section 56 of the Indian Contract Act, arguing that the price hike made performance impossible. The Supreme Court rejected this argument, holding that mere increase in cost does not amount to frustration. Section 56 applies only when performance becomes impossible, not just expensive or difficult. The contract remained enforceable, and SEAMEC Ltd. could not claim additional compensation.
Sushila Devi v. Hari singh: Deals with the applicability of Section 56 of the Indian Contract Act, 1872. The respondents had entered into a lease agreement but, due to the partition of India, the land became part of Pakistan, making performance impossible. The Supreme Court held that Section 56 applies only to agreements to lease, not to completed leases. Since no lease deed was executed, there was only an agreement to lease, which became void due to frustration of contract. The respondents were entitled to a refund of their deposit, as the supervening event (partition) struck at the root of the contract. The appeal was dismissed, reinforcing that a contract becomes void if its performance is rendered impossible by unforeseen circumstances.
The second important thing mentioned in this section is Subsequent Impossibility, in very simple terms it means that sometimes when parties enter into a contract it seems to be possible to fulfil the object of the contract but occurrence of any event makes it impossible or unlawful, in both the cases the contract will be void.
Illustration: When two parties come into a contract to deliver gold from India to Dubai, but Indian government bans the export of gold to Dubai, the contract will become void.
Robinson v. Davidson: Davidson contracted to perform at a concert organized by Robinson. However, Davidson was unable to perform due to sudden illness. Robinson sued for breach of contract. The court held that Davidson’s illness rendered the performance of the contract impossible and excused her from liability. The contract was considered frustrated, an unforeseen event made it impossible to carry out the contractual obligations.
There are some grounds of Frustration:
Destruction of the decided subject matter.
Change Of Circumstances
Non-occurrence of a contemplated event
Death of the party of his incapacity to contract
Government, Administrative or any Legislative intervention.
Discharge by Agreement and Novation
Novation as a term means where the parties to contract mutually agree to substitute any existing contract with a newly framed contract.
Illustration: A has taken 5000 rupees from B and B has taken 5000 rupees from C, so the initial contract is that A needs to pay 5000 rupees to B but A,B and C mutually decide that A will pay those 5000 rupees directly to C instead of B. So here the contract between A and B will be substituted with a newly made contract between A and C.
Scarf v. Jardine: It was held that once a creditor chooses to deal with the new firm (with the new partner), they forgo the right to hold the outgoing partner liable.
Novation involves, change in the parties of contract and the second aspect is Substitution of a new contract in the place of old existing contract.
Change in parties: This is the scenario where the parties of contract changes with the mutual consent of each other. The above mentioned illustration is an example of change in parties of contract where the initial contract was between A and B but later the parties of contract changed and it became the contract between A and C
Substitution of new agreement: When parties to the contract with their mutual consent decide to substitute a new contract in place of original contract then the original contract is said to be discharged and that need not to be performed.
Illustration: An engineering company came into contract for extraction of coal became affected by major slides leading to stoppage. Another area was allotted to the petitioner in place of the affected area. He accepted it though it was less than the original allotted area. The court said that original contract became discharged. Tenders could validly be invited for that area.
Remission of Performance: It is mentioned in section 63 of the Indian contract act, in simple words it means when a party who has all the rights to demand the performance of a contract may remit or dispense with it wholly or partially, can extend the time for performance and can accept any other satisfaction instead of performance.
Illustration: A has to pay B the amount of 10,000 rupees but B with his free consent accepts only 5000 and discharge A from the liability to pay another 5000 to B. This is called remission of performance.
Waiver: In simple words, the party who is entitled to claim any performance or money or any other object, may waive it by his own discretion. In the words of supreme-court the waiver is the abandonment of a right which normally everybody is at liberty to waive.
Illustration: A is a brilliant student so he got the opportunity from his school to study abroad on the expenses of school authority, simply he got the scholarship from the school to study abroad and the condition was that if A will submit all the required document before a certain date only then he can avail that scholarship, A did not submitted the document, so A has waived his right.
Discharge by Breach
A breach of contract occurs when a party to contract does not perform his side of obligation by any reasons.
Anticipatory Breach: In simple words, it is an announcement by the party of the contract about his intention not to fulfil the contract and not to be bound by it.
Baby v. Gopakumar, 2013: The plaintiff (Baby) entered into an agreement to purchase land from the defendant (Gopakumar). However, Gopakumar failed to execute the sale deed, indicating his unwillingness to fulfill the contract. This amounts to an anticipatory breach, where one party clearly refuses or shows an intention not to perform their contractual obligations before the due date.
Damages for Breach: A contract is not a property or place. It is just a promise supported by some consideration upon which either the remedy of specific performance or that of damage is available. The injured party can surely bring an action for the damages caused to him because of the breach of contract. What remedy to provide and what compensation should be made depends on the remoteness of damage, the consequences of breach may be endless but there must be an end to liability.
FAQS
1. What are the different ways a contract can be discharged?
A contract can be discharged in several ways, including:
By performance (when both parties fulfill their obligations).
By impossibility of performance and frustration (if an unforeseen event makes performance impossible or unlawful).
By agreement and novation (substituting an old contract with a new one).
By breach of contract (when one party fails to perform or refuses to comply).
2. What is the doctrine of frustration in contract law?
The doctrine of frustration applies when a contract becomes impossible to perform due to unforeseen events beyond the control of the parties. Under Section 56 of the Indian Contract Act, a contract is void if:
The agreed act was impossible from the beginning (initial impossibility).
The act becomes impossible due to external circumstances after the contract was formed (subsequent impossibility).
Example: If a contract is made to transport goods to a country that later imposes a ban on such imports, the contract is frustrated and becomes void.
3. What is novation, and how does it discharge a contract?
Novation occurs when an existing contract is replaced with a new contract, either by:
Changing the parties involved in the contract, or
Substituting new terms while keeping the same parties.
Example: If A owes B Rs. 5000, but A, B, and C mutually agree that A will pay C instead of B, the original contract between A and B is discharged, and a new contract between A and C is formed.
4. What is an anticipatory breach of contract?
An anticipatory breach happens when a party clearly indicates (through words or actions) that they will not fulfill their contractual obligations before the due date of performance.
Example: In Baby v. Gopakumar (2013), the defendant refused to execute the sale deed before the deadline, showing an intention not to perform, which amounted to an anticipatory breach. The injured party may:
Immediately sue for damages, or
Wait until the due date and then take legal action.
5. What remedies are available for breach of contract?
When a contract is breached, the injured party can seek:
Damages (compensation for financial losses caused by the breach).
Specific performance (a court order compelling the defaulting party to fulfill the contract).
Injunction (a court order preventing the breaching party from taking certain actions).
Rescission (canceling the contract and restoring both parties to their original positions).
The remedy depends on the nature of the breach, the extent of damages, and the court’s discretion.
