Discharge/termination
of contract – all rights and obligations under contract cease – may be
discharged by –
(1)
By performance
(2)
By agreement or consent
(3)
By impossibility of performance
(4)
By lapse of time
(5)
By operation of law
(6)
By breach of contract.
1. Discharge
by performance – both parties fulfil their contractual obligations - within
time - in prescribed manner – if only party fulfils its obligations, only that
party discharged – gets right of action against other party for breach.
May be –
a)
Actual performance – when both
parties discharge their obligations.
b)
Attempted or tender performance
– an offer to perform – where promisor offers to perform, but promisee refuses
to accept performance, tender is equivalent to actual performance, except in
case of tender of money – tenderer discharged without prejudice to his rights.
2. Discharge
by agreement or consent – “a thing may be destroyed
in the same manner in which it is constituted
Various methods are –
a)
Novation – new contract
substitutes existing one – either between same parties or between one of the
existing parties and a third party – must take place before expiry of old
contract – in case new contract enforceable, parties can fall back upon the old
contract.
Example : (i) A owes money to B – enters into agreement with B and
gives him mortgage of his (A’s) estate – new contract replaces the old one.
Shanker Lal Damodar V A. Ajaipal - existing mortgage discharged by substitution
of new agreement of mortgage – new agreement not enforceable for want of
registration – Held, parties could fall back upon the original mortgage.
b)
Rescission – when all or some
terms of contract are cancelled – may be by mutual consent or on failure to
perform by one party – party rescinding a voidable contract has to restore
benefits received by him under the contract. Rescission may be (i) either
total, or
(ii) partial -
Ø
Rescinding some terms of
contract
Ø
Substituting new terms for old
ones.
Ø
Adding new terms without
modifying any old terms.
c)
Alteration – modification of
one or more terms of old contract by mutual consent – old contract deemed to be
discharged.
d)
Remission – acceptance of
lesser fulfilment of promise made – e.g. acceptance of lesser amount than due
in discharge of the whole debt – consideration not necessary for remission.
e)
Waiver – mutual abandonment of
rights by parties to the contract – no consideration necessary for waiver.
f)
Merger – when inferior right
accruing to a party under contract merges with superior right accruing to same
party under same or other contract.
Example : P holds a property under a lease agreement – later P buys
the said property under a different agreement – P’s rights as lessee merge into
his rights as an owner
3. Discharge
by impossibility of performance – also called
pre-contractual or initial impossibility - may fall into two categories –
a) Impossibility
existing at time of agreement – void ab initio – based on maxims – (i) lexion
cogit ad impossibilia, i.e. law does not recognise what is impossible, and
(ii) impossibilium nulla obligato est, i.e. what is impossible does not
create an obligation – may be known or unknown to parties.
Couturier Vs. Hastie – H
employed by C as del credere agent to sell C’s cargo of corn which was in transit
– H sold the cargo to a third person - Unknown to both, the corn became fermented in transit and
already sold by the master of the ship at an intermediate port – buyer
repudiated the contract and H was sued for the price (being del credere agent) – Held, as goods had
already been totally lost before the contract was made, the contract void ab initio due to impossibility of performance - H not liable.
b) Impossibility
arising subsequent to formation of contract – also known as post contractual or
supervening impossibility – contract becomes void such act becomes impossible
or unlawful – normally parties not discharged by supervening impossibility and
are liable for damages – however, if caused by circumstances beyond their
control, parties discharged from further performance – may be due to following
reasons –
1. Destruction
of subject matter – without fault of parties – contract discharged.
Taylor Vs. Caldwell – defendant agreed to let plaintiff use of their music
hall between certain dates for concert – before the first day of concert, hall
destroyed by fire without fault of either party – plaintiff sued defendant for
their loss – Held, performance depended upon the continued existence of hall –
performance becomes impossible on perishing of hall without default of the
contractor – void.
Nickoll
& Knight V Ashton, Edridge & Co. – cargo of cotton seed to
be shipped by particular ship – before shipping, ship damaged by stranding – loading of cargo
impossible – Held, contract discharged.
2. Non-existence
or non-occurrence of particular state of things – also called ‘frustration of
contract’.
Example – A and
B contract to marry each other – before date fixed for marriage, A goes mad –
contract becomes void.
Krell V Henry – H hired flat from K for June 26 and 27, 1902 for witnessing
coronation procession of Kind Edward VII – K knew of H’s purpose – coronation procession cancelled
due to illness of King – Held, cancellation discharged the contract – H excused
from paying the rent of the flat.
3. Death or incapacity for personal service –
Robinson V
Davison – R undertook to perform at concert for
certain price – before she could perform, she was taken seriously ill – Held,
she was discharged due to illness.
4.Change of law
Baily V De
Crespigny -
D leased land to B – agreed to erect a building on adjoining land –
subsequently, the adjoining land acquired by railway company under statutory
authority – Held, D excused from performance of contract.
Noor Bux V
Kalyan - A
agreed to transport B’s goods – subsequently, A’s trucks requisitioned by government
under statutory power – Held, contract discharged
5. Outbreak of
war – contract entered into with alien enemy during war is unlawful and void –
contracts entered into before outbreak of war, are suspended during war and may
be revived after the war is over.
In following
cases, contract not discharged on grounds of supervening impossibility –
a) Difficulty of
performance – may be due to unforeseen events or delays
Blackburn
Bobbin Co. V Allen & Sons – A sold Finland
timber to B - to be delivered between July and September – Before actual
delivery, war breaks out in August – transport disorganised – A unable to
deliver – Held, A not discharged.
Tsakiroglou
& Co. Ltd. V Noblee Thori G.m.b.H. – A agreed to sell 300 tons of Sudan groundnuts to B c.i.f. Hamburg – usual
route via Suez Canal – Shipment to be made in November/December, 1956 – canal
closed on November 2, 1956 – reopened only in following April – A refused to ship
goods via Cape of Good Hope – pleaded contract frustrated by reason of closing
of Suez Canal – Held, contract not frustrated as A could have transported goods
via Cape of Good Hope.
B) Commercial
impossibility – contract not discharged on non-realisation of expected high
profits or increase in cost of acquisition because of outbreak of war or
inflation or sudden depreciation of money.
Karl
Ettlinger V Chagandas & Co. – A promised to send goods from Bombay to
Antwerp in September – before shipment, war breaks out – sharp increase in
shipping rates – Held, contract not discharged.
C) Impossibility
due to failure of third person – where non-performance due to default of third
person on whose work the promisor relied – contract not discharged.
Harnandrai
Fulchand V Pragdas – A entered into contract with B
for sale of certain type of cloth to be produced by C – C did not manufacture
that cloth- Held, A liable for damages.
Ganga
Saran V Ram Charan – A agreed to sell to B
specified quantity of cotton goods to be manufactured by a particular mill –
time schedule agreed upon for delivery – mill failed to produce goods - A could
not fulfil his agreement with B – Held, B entitled to recover damages from
A.
D) Strikes,
lock-outs or civil disturbances –
Budget V
Binnington – Unloading of ship delayed beyond date
– due to strike by dock workers – Held, ship-owners entitled to damages, the
impossibility of performance being no excuse.
Jacobs V
Credit Lyonnais – A agreed to supply to B certain
goods procured from Algeria – goods not produced due to riots and civil
disturbance in Algeria – Held, there was no excuse for non-performance of
contract.
E) Failure of
one of the objects – where contract entered into with several objects, failure
of one of them does not discharge the contract.
Herne Bay
Steamboat Co. V Hutton – HB agreed to let out boat
to H for viewing a naval review on occasion of coronation of Edward VII and for
sailing around the fleet – naval review cancelled due to king’s illness – but
fleet assembled – boat could be used to sail around the fleet – Held, contract
not discharged.
4. Discharge
by lapse of time – due to the performance
becoming time barred on applicability of the Limitation Act, 1963.
5. Discharge
by operation of law-
a.
by death – contracts involving personal
skill or ability terminated on death of promisor – in other contracts, rights
and liabilities devolve on legal representatives
b.
by merger - when inferior right
accruing to a party under contract merges with superior right accruing to same
party under same or other contract.
Example : P holds a property under a lease agreement – later P buys
the said property under a different agreement – P’s rights as lessee merge into
his rights as an owner
c.
by insolvency – person adjudged
insolvent discharged from all liabilities incurred prior to such adjudication.
d.
By unauthorised alteration of
terms of the written agreement – where a party makes any material alteration without
consent of other party – voidable at the option of other party – if however
alteration is not material, parties may opt to carry out the common intention.
6. Discharge
by breach of contract – non-fulfilment of
contractual obligation - may be either –
A) Actual breach
of contract – may take place -
- at the time when performance due – one party fails or refuses to perform his obligation under the contract – if time is not essence of contract, the other party may accept delayed performance subject to payment of compensation.
- During the performance of contract – non performance by one party – other party entitled to sue for breach of contract - may be by –
- Express repudiation – either by word or act.
Cort V Ambergate etc. Rly. Co. – C
contracted with railway company to supply 300 tons of railway chairs at
specified price – to be delivered in instalments – after delivery of 1.787 tons
completed, railway company asked C to stop further delivery – Held, railway
company liable for breach of contract.
- Implied repudiation – impossibility created by act of a party to contract – tantamounts to breach of contract – other party discharged from further performance.
O’Neil V. Armstrong – P, a British
subject, engaged by Captain of a warship owned by Japanese government to act as
fireman – Japanese government declared war on China – P was informed that the
performance of contract would bring him under penalties of Foreign Enlistment
Act – P left the ship – Held, he was entitled to recover the wages agreed upon.
B) Anticipatory
breach of contract – in executory contract (performance still due), one party
repudiates his obligation under the contract before the time for performance
arrives – other party absolved from performance of his obligation under the
contract – may also sue for breach of contract
May be done by –
- Express renunciation – e.g. before date of actual delivery, supplier intimates the buyer that he is not going to supply the goods.
- Some act so that performance becomes impossible
Lovestock V Franklyn - A promised to assign to B within seven
years, all his interest in a lease for a sum of £.140 – before expiry of seven
years, A assigned his interest to another person – Held, this was anticipatory
breach of contract by implied repudiation.
- Anticipatory breach does not necessarily discharge the contract, unless the promisee so chooses.
Hochster V. De La Tour – D engaged H on
12th April to enter into his services as courier – to accompany him
upon a tour – employment to commence on 1st June – on 11th
May, D wrote to H telling him that his services were no longer required – H
brought a suit for damages although time for performance had not yet arrived –
Held, suit of H tenable – entitled to damages.
If promisee
refuses to accept repudiation by promisor and treats it as alive, the
consequences may be –
- promisor may perform his promise when the time for performance arrives and promisee is bound to accept the performance.
- while the contract is still alive, a supervening impossibility may discharge the contract – promisee loses his right to sue for damages.
Avery V. Bowden – B chartered A’s ship –
agreed to load it with cargo within 45 days at Odessa – when ship reached
Odessa, B unable to supply the cargo – A did not accept refusal and continued
to demand cargo – before expiry of 45 days, war breaks out rendering
performance of contract impossible – Held, contract discharged and A could not
sue for damages.
Measure of
damages in anticipatory breach of contract
- if contract ended by promisee at once – damages will be measured by difference between price prevailing on the date of breach and the contract price.
- If contract kept alive till the date of performance – measure of damages will be difference between price prevailing on the date of performance and the contract price.
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