Discharge of Contract:

A contract is said to be discharged when the obligations created by it come to an end. In other words discharge of contract means ' termination of the contractual relationship between the parties'. There are various modes of Discharge of Contract, a contract may be discharged either in a positive way (Positive - by performance) or in negative. (Negative - by breach or failure to perform contractual obligation by either of the parties).

There are various modes of discharge of a contract which are as follows :

1. By performance

2. By agreement or consent

3. By impossibility

4. By lapse of time

5. By operation of law

6. By breach of contract

1. By performance -

A contract is said to be discharged if the parties to a contract fulfill their obligations arising under the contract within the time and in the manner prescribed. In such a case, the parties are discharged and the contract comes to an end.

Performance of a contract is the most usual mode of its discharge. It may be Actual Performance or attempted Performance (tender)

(a) Actual performance:  When both the parties perform their promises, the contract is discharged. Performance should be complete, precise and according to the terms of the agreement. Most of the contracts are discharged by the performance in this manner.

(b) Tender or Offer of Performance:  Tender or offer of performance means "offer made by the promisor to promisee expressing his willingness to perform his part of the obligation under the contract. It is also known as attempted performance.

Example-

'A' offers to sell his house to 'B' for $100000 and 'B' accepts the same letter 'B' paid the amount in full and 'A' handed over the house to 'B'. Here the parties have fulfilled their obligations.The contract is said to be discharged by performance.

If only one party performs the promise, he alone is discharged. Such a party gets a right of action against the other party who is guilty of breach of contract.

2. Discharge by agreement or consent:

A contract rests on the agreement of the parties. As it is an agreement which binds them, so by their agreement or consent they may be discharged.

A contract may be terminated by subsequent agreement. The new agreement may be by way of :

a) Novation- Section 62 of the Indian Contract Act deals with the doctrine of novation. when a new contract is substituted for an existing one, either between the same parties or between the new parties. If the parties to a contract agreed to substitute a new contract for it or to rescind or alter it, the original contract need not be performed.

b) Alteration-. i.e., when one or more of the terms of the contract is/are altered by the mutual consent of the parties to the contract.

c) Rescission- i.e., when all or some of the terms of the contract are canceled.

d) Remission-  Section 63 of the Indian Contract Act 1872 speaks about the discharge of a contract by remission. i.e., acceptance of a lesser fulfillment of the promise made.

e) Waiver - which means intentional relinquishment or giving up of a right by a party entitled thereto under a contract.

f) Merger- i.e., when an inferior right accruing to a party under a contract merges into a superior right accruing to the same party under a new contract.

3. Discharge by Impossibility of Performance:

If the performance of a contract is impossible, it is void. In other words, the impossibility of performance renders the contract void. Section 56 of the Indian Contract Act 1872 lays down the provisions relating to the impossibility of performance, which runs as follows -

" An agreement to do an act impossible in itself is void." Impossibility which arises subsequent to the formation of a contract ( which could be performed at the time when the contract was entered into ) is called subsequent or supervening impossibility include-

a) destruction of the subject-matter of contract;

b) non-existence or non-occurrence of a particular state of things;

c) death or incapacity for personal service;

d) change of law or stepping in of a person with statutory authority;

e) outbreak of war. The contract is discharged in these case.

The following cases are not covered by supervening impossibility ;

a) difficulty of performance;

b) commercial impossibility;

c) failure of a third person on whose work the promisor relied;

d) strikes, lockouts and civil disturbances;

e) failure of one of the objects. The contract is not discharged in these cases.

4. Discharge by lapse of time:

The limitation act 1963, imposed an obligation on the parties in respect of certain contacts to perform within a specified. If a contract is not performed within the period of limitation and if no action is taken by the promise in a law court, the contract is discharged.

5) Discharge by operation of law:

A contract may be discharged by operation of law.

It includes discharge by

a) Death

b) Merger

c) Insolvency/ Bankruptcy

d) Unauthorized Alteration of the terms of a written agreement, and

e) Rights and liabilities becoming vested in the same person.

f) Judgement of Court

6) Discharge by breach of Contract:

Breach of contract means failure to perform the contractual obligation by either of the parties without any lawful excuse. It is a ground for discharge of the contract.

Breach of contract may be -

1) Actual breach, or

2) Anticipatory breach.

1) Actual breach of contract may occur a) at the time when the performance is due, or b) during the performance of the contract.

2) Anticipatory breach of contract occurs when a party repudiates his liability or obligation under the contract before the time for performance arrives.

Breach of Contract:

There are several remedies for breach of contract, such as award of damages, specific performance, rescission, and restitution. In courts of limited jurisdiction, the main remedy is an award of damages.

What Damages Can Be Awarded?

There are two general categories of damages that may be awarded if a breach of contract claim is proved. They are:

1. Compensatory Damages. Compensatory damages (also called “actual damages”) cover the loss the non breaching party incurred as a result of the breach of contract. The amount awarded is intended to make good or replace the loss caused by the breach.

There are two kinds of compensatory damages that the non breaching party may be entitled to recover:

A. General Damages. General damages cover the loss directly and necessarily incurred by the breach of contract. General damages are the most common type of damages awarded for breaches of contract.

Example: Company A delivered the wrong kind of furniture to Company B. After discovering the mistake later in the day, Company B insisted that Company A pick up the wrong furniture and deliver the right furniture. Company A refused to pick up the furniture and said that it could not supply the right furniture because it was not in stock. Company B successfully sued for breach of contract. The general damages for this breach could include:

• refund of any amount Company B had prepaid for the furniture; plus

• reimbursement of any expense Company B incurred in sending the furniture back to Company A; plus

• payment for any increase in the cost Company B incurred in buying the right furniture, or its nearest equivalent, from another seller.

B. Special Damages. Special damages (also called “consequential damages”) cover any loss incurred by the breach of contract because of special circumstances or conditions that are not ordinarily predictable. These are actual losses caused by the breach, but not in a direct and immediate way. To obtain damages for this type of loss, the non breaching party must prove that the breaching party knew of the special circumstances or requirements at the time the contract was made.

Example: In the scenario above, if Company A knew that Company B needed the new furniture on a particular day because its old furniture was going to be carted away the night before, the damages for breach of contract could include all of the damages awarded in the scenario above, plus:

• payment for Company B’s expense in renting furniture until the right furniture arrived.

2. Punitive Damages. Punitive damages (also called “exemplary damages”) are awarded to punish or make an example of a wrongdoer who has acted willfully, maliciously or fraudulently. Unlike compensatory damages that are intended to cover actual loss, punitive damages are intended to punish the wrongdoer for egregious behavior and to deter others from acting in a similar manner. Punitive damages are awarded in addition to compensatory damages.

Punitive damages are rarely awarded for breach of contract. They arise more often in tort cases, to punish deliberate or reckless misconduct that results in personal harm.

Remedies available for breach of contract:

1] Recession of Contract

When one of the parties to a contract does not fulfil his obligations, then the other party can rescind the contract and refuse the performance of his obligations.

As per section 65 of the Indian Contract Act, the party that rescinds the contract must restore any benefits he got under the said agreement. And section 75 states that the party that rescinds the contract is entitled to receive damages and/or compensation for such a recession.

2] Sue for Damages

Section 73 clearly states that the party who has suffered, since the other party has broken promises, can claim compensation for loss or damages caused to them in the normal course of business.

Such damages will not be payable if the loss is abnormal in nature, i.e. not in the ordinary course of business. There are two types of damages according to the Act,

Liquidated Damages: Sometimes the parties to a contract will agree to the amount payable in case of a breach. This is known as liquidated damages.

Unliquidated Damages: Here the amount payable due to the breach of contract is assessed by the courts or any appropriate authorities.

3] Sue for Specific Performance

This means the party in breach will actually have to carry out his duties according to the contract. In certain cases, the courts may insist that the party carry out the agreement.

So if any of the parties fails to perform the contract, the court may order them to do so. This is a decree of specific performance and is granted instead of damages.

For example, A decided to buy a parcel of land from B. B then refuses to sell. The courts can order B to perform his duties under the contract and sell the land to A.

4] Injunction

An injunction is basically like a decree for specific performance but for a negative contract. An injunction is a court order restraining a person from doing a particular act.

So a court may grant an injunction to stop a party of a contract from doing something he promised not to do. In a prohibitory injunction, the court stops the commission of an act and in a mandatory injunction, it will stop the continuance of an act that is unlawful.

5] Quantum Meruit

Quantum meruit literally translates to “as much is earned”. At times when one party of the contract is prevented from finishing his performance of the contract by the other party, he can claim quantum meruit.

So he must be paid a reasonable remuneration for the part of the contract he has already performed. This could be the remuneration of the services he has provided or the value of the work he has already done.