Discharge of Contract

Legal Aspects of Infrastructure Business

Submitted to: Submitted by:

Dr. R. K. Singh Raj Shah
Adani Institute of Infrastructure Management PGDM-IM, Roll no: 32
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Discharge of Contract

Aim:

The aim to study this particular topic is how the contract gets discharge between parties that in
which circumstances the parties free from performing their obligations

Objective:

The objective is to study this topic to understand with examples that in how many ways the
contract gets discharge.

Research Question:

• What is discharge of contract?

Discharge of a contract means termination of a contract. It is the act of making a contract

or agreement null. A discharged contract refers to contract that is fully performed.

• Discharge from a Contract:

There are many ways through which party can be discharged from a contract. Best way to
do it is by completing or executing the contract. On the other hand, there are certain types of
ways which are being practiced to get discharged.
A. Discharge by Substitution:
B. Discharge by Rescission:
C. Discharge by Alteration:
D. Discharge by Breach:
E. Discharge by impossibility/ unlawfulness of performance:
F. Discharge by agreement and novation:
G. Discharge by operation of law:
H. Discharge by lapse of time:

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Discharge of Contract

Now, let us understand some of the methods by going through examples.

Methodology:

A. Discharge by Substitution:

Sometimes parties may decide that their contract is not the one they want. They
may want to replace it with another contract. If they do, the original contract
is discharged by substitution.

Case – 1

If two parties enter in to a contract and over a period of time they decide to change the
terms and conditions of the contract with the free consent of the both the parties, and
agrees with the new updated terms and condition then the old contract can be said
substituted by the new one. And hence, both the parties can be said discharged from the
old contract.

Case – 2

If two parties enter in to a contract and over a period of time, one party gets substituted
by another one then, this is also called discharge by Substitution.

B. Discharge by Rescission:

The effect of rescinding a contract is to extinguish it and to restore (as far as

possible) the parties to the positions they were in before contracting. A contract that
can be rescinded.

It is basically known as unmaking of a contract. When two parties mutually

agree on terminating the contract then it can be known as discharge by rescission. This
can only be done with the free consent of the parties involved.

Case:

Raj agrees to supply 100 kg of sugar to Yash. But before supply is made, if Yash
realizes that there is no need of sugar and Raj also agrees on that then, the contract can
be rescinded by mutual consent.

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Discharge of Contract

C. Discharge by Alteration:

Alteration of a contract means change in one or more of the terms of a contract.

Alteration is valid, if it is done with the consent of all the parties to the contract. In such
a case, the old contract is discharged.

In this, parties which are involved in the contract mutually agrees on changing
one or more terms of the contract, then this alteration discharges the original contract
and creates new contract. However, parties of the new contract remain same.

Case:

Raj agrees to supply 100 kg of sugar to Yash. But before supply is made, if Yash
realizes that there is only 50kg need of sugar and Raj also agrees on that then, the
contract can be said altered by mutual consent.

D. Discharge by Breach:

If a party to a contract fails to perform his obligation according to the time and
place specified, then he is said to have committed a breach of contract.

In this kind of discharge, many ways are possible wiz,

1. Anticipatory Breach:

The breach can be said Anticipatory when the non-Breaching party realizes that
non-performance by the other party is inevitable; this gives the suffering party
provision to sue for the anticipated damages.

Case:

If Raj and Yash enters in to the contract in which it is stated that, Raj will supply
sugar of 1 ton on 1st Jan 2019 for 100 thousand rupees. Yash pays half money in
advance and contract establish on 1st Jan 2019. But on 1st of Dec 2019, Raj informs
Yash that he will not be able to supply the sugar, this can be considered as
anticipated breach in which Yash can sue Raj and can ask for termination of contract
and claim subsequent damages.

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Discharge of Contract

2. Actual Breach:

The Breach can be said Actual breach when one party refuses or fails to perform
the required task of the contract.

Case:

If Raj and Yash enters in to the contract in which it is stated that, Raj will supply
sugar of 1 ton on 1st Jan 2019 for 100 thousand rupees. Yash pays half money in
advance and contract establish on 1st Jan 2017. But on 1st of Dec 2019, Raj informs
Yash that he will not be able to supply the sugar, this can be considered as actual
breach in which Yash can sue Raj for damages.

3. Fundamental Breach:

When two parties enter in to contract and among them any one of them fails to
perform one of the fundamental tasks, then in this case the suffering party can sue
the other party for the damages and also, he or she can terminate the contract also.

Case:

If Raj has entered into a contract with a taxi service company. According to
contract, Taxi Company supposed to provide a Mercedes Benz for picking up the
guest of Raj at the airport and in contract it was written that level of comfort and
company of the car shall exclusively be Mercedes Benz. But instead of that Taxi
Company provided Maruti 800 that too without air condition, now this is known as
fundamental breach of contract where Raj can sue for the damages.

4. Material Breach:

When two parties enter in to a contract on the basis of material specification,

and other party deviates from the expected standard of the material which was to be
provided, then the suffering party can terminate the contract and subsequently can
claim for damages.

Case:

If a farmer entered into contract with the fertilizer company for providing pure
quality fertilizer. But during delivery time Fertilizer Company provides clay mixed
and low-quality fertilizer. Then farmer can terminate the contract and sue Fertilizer
Company. This kind of breach is known as material breach.

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Discharge of Contract

5. Minor or Partial Breach:

When two parties with free consent agrees upon certain terms and condition and
enter in to a contract and one of the parties does not provide or act on the agreed
terms then other party can sue for damages but here the suffering party cannot
terminate the contract though it is a breach.

Case:

If Raj has entered in to contract with the Taxi Company, that company will provide
Air-conditioned car during the pickup from the airport and also will provide cold
bottle of water for drinking purpose. But instead of that Taxi Company provides
normal water bottle and other offering as per the contract then in this case Raj can
claim for not being offered cold water but he cannot terminate the contract as the
breach is minor.

REFERANCES:
• Contract LAW by Avtar Singh
• Legal Aspects of Business by Akhileshwar Pathak
• WWW.indiankanoon.com

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