DISCHARGE OF CONTRACT MODES -DISCHARGE BY PERFORMANCE; FRUSTRATION; SUPERVENING IMPOSSIBILITY OF PERFORMANCE

ABSTRACT

In common, a contract is a reasonably enforceable agreement that commits two or more parties to carrying out specific activities or behaviors. A contract is portrayed as “An agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law” in Black’s Law Dictionary.[1] A contract basically comprises a bunch promise, or pledge, and any shape of compensation to which the law will apply. A lawfully enforceable agreement is alluded to as a contract under Section 2(h) of the Indian Contract Act, 1872. An understanding must meet particular criteria to be considered a contract, counting a lawful reason, consent, and legitimate consideration. The Act offers a structure for understanding the creation, execution, and end of contracts. The Indian Contract Act, 1872, gave rules for contract release and numerous ways in which a contract might be rejected to suit imaginative scripts when a contract would require being reestablished or modified.

This exploratory paper’s primary objective is to truly acknowledge what discharge is and what are the distinctive ways a contract can be discharged, discharge by performance, frustration, and supervening impossibilities of performance. The Indian Contract Act, 1872, gives common strategies for tending to legally binding joins by moderating the impacts of unexpected occasions. It also ensures that the agreement between parties stays substantial and adaptable in the face of changing circumstances.

KEYWORDS

Indian Contract Act, Discharge, Discharge by Performance, Frustration, Supervening Impossibilities by Performance, Agreement.

INTRODUCTION

A composed or casual agreement that sets up obligations with legitimate constrains between parties is called a contract. Ordinarily, there’s an offer, an acceptance, consideration, and consent by both parties. In order for a contract to be enforceable, it must also include the parties’ ability and legitimate purpose. As per Black Law Dictionary reference, a contract is moreover known as “A promise or set of promises by a party to a transaction, enforceable or otherwise recognizable at law.”[2] In order to ensure that parties follow the expressed terms and conditions, the agreement must be decently official. The depiction of a contract is expressed under Section 2(h) of the Indian Contract Act, 1872: “A contract is an agreement enforceable by law.“[3]The basics for a substantial contract under the Indian Contract Act, 1872, are basically sketched out in Section 10 and its states: “All agreements are contracts if they’re made by the free consent of parties competent to contract, for a legal consideration and with a legal object, and are not hereby expressly declared to be void.” [4] This Act gives an outline for comprehending multitudinous viewpoints of contract compliance, performance, and discharge. It’s forcefully grounded upon common law generalities. It ensures that the agreement between parties stays substantial and adaptable in the face of changing circumstances.

DISCHARGE

The term discharge is defined as “Any method by which a legal duty is extinguished; esp., the payment of a debt or satisfaction of some other obligation.” under Black Law Dictionary.[5] Discharge is not clearly laid out in the Indian Contract Act, 1872, although, there are provisions permitting discharge through various methods. Discharge of contract can also be called Termination of the contractual relationship between the parties to the contract, and also the rights and obligations of the parties that are created at the time the contract is made come to an end.[6] Discharge of a contract includes finishing the legally binding obligations of the party, demonstrating that the contract between both parties is ended, and they are no longer committed to fulfilling their obligations as sketched out in the agreement. A contract may be ended if both parties agree to conclude the contract. Endo of the contract or termination of contract moreover closes the contract’s legitimately enforceable authority.

MODES OF DISCHARGE

There are different strategies to discharge a contract incorporate- Performance (Section 37-38), Agreement (Section 62-63), Lapse of time, Operation of Law, Supervening Impossibilities (Section 56). Once the discharge happens the understanding is seen as either satisfied, void or ended, based on the situation.

DISCHARGE BY PERFORMANCE

When a contract is discharged by performance, it indicates that all terms and duties agreed upon by the parties have been fulfilled. It takes put when each party fulfills their end of the deal as mentioned in the contract. The contract is regarded discharged and the parties are released from any future commitments upon completion of the performance. Authentic performance is basic to a contract’s effective completion.

In addition, the Section 37 of the Indian Contract Act, 1872, states that “The parties to a contract must either perform, or offer to perform…”. These two terms “must either perform or offer to perform” clearly provides the two types of performance by which a contract can be discharged:-
a. Actual Performance – The contract no longer binds any party. . Both the parties perform their obligations they had agreed upon, under the contract, is known as Actual performance.
b. Attempted Performance (tender or offer of performance): When the promisor(Section 2(c) of the act states that the individual who makes a promise to fulfill the certain commitment.) endeavors to perform his promise under the contract but the promisee (Section 2(c) of the act states that- the party to whom promise is made and who is entitled to get the benefits from the performance specified in the contract) denies to acknowledge the performance made by the promisor. It’s referred to a tender of performance or an attempted performance. This is covered by the provision of Section 38 of the Indian Contract Act, 1872 as “Effect of refusal to accept offer of performance” [7] and is dealt with later. [8]

DISCHARGE BY AGREEMENT

A contract is established through mutual agreement between both parties, indicating that it was indeed created through the agreement of both parties. When the agreement is mutually established, it can also be mutually terminated or discharged. Section 62 and Section 63 relate to the regulations concerning discharge through agreement. Nevertheless, if one party has fulfilled their obligations under the agreement while the other has not, the situation becomes more intricate. In this instance, some type of thought must be given in order to end a contract through mutual agreement. Six ways agreement discharge can occur include novation, rescission, alteration, remission, waiver, merger, and accord and satisfaction.

DISCHARGE BY LAPSE OF TIME

The Limitation Act of 1963 established a specific time frame for contract execution. The contract is dismissed, and the promisee loses his legal remedy if it is not carried out and he does not file a lawsuit within the statute of limitations. Such contracts are discharged and will result in nullification of the contract due to lapse of time.[9] According to Section 2(j) of the Limitation Act,[10] a “prescribed period” is a period of limitation that is specified in accordance with the 1963 Act’s provisions, and a “period of limitation” is the time frame set forth in the Schedule for any action, appeal, or application.[11]

DISCHARGE BY OPERATION OF LAW

A contract may be discharged by operation of law in a number of situations, including non-performance, mergers, changes to the contract, and the parties’ deaths or insanities. The legal framework governing the discharge of a contract in India by operation of law is established by the Indian Contract Act, 1872. Provisions like Sections 12, 34, 37, 56, 60, 62, & 63, and some other legislation like the Insolvency and Bankruptcy Code, 2016, and the Special Relief Act, 1963. This occurs when the parties ‘contractual obligations are ended by the application of law. This might make some people answerable for certain duties because of current legal requirements. It may also restrict a party’s contractually imposed legal obligations. The contract expires by operation of law if it is not enforceable under such conditions.

DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE

The Impossibility of Performance happens when a contract is void from the start because it is inherently impossible to carry out from the moment it begins. It covers circumstances in which the contract could not be carried out because of basic limitations or known or foreseeable legal restrictions at the time of contracting and preventing the execution of the contract’s provisions, either physically or legally. As per Section 56 of the Indian Contract Act, 1872, “An agreement to do an impossible act is void ab initio”. It means agreement, which is obviously impossible, cannot be binding. Furthermore, it addresses circumstances of initial impossibilities, stating that a promise to perform an impossible act is null and void. Sometimes, a contract capable of being performed after formation becomes impossible or unlawful and, as a result, void– this is known as subsequent impossibility; this is also covered under the same provision of the Act.

DISCHARGE BY FRUSTRATION

Frustration occurs when an unforeseen incident fundamentally destroys the contract’s purpose or objective, even if performance is technically feasible. Due to the primary goal of the contract being compromised, it becomes void. Put another way, it describes a circumstance in which the goal or aim of the contract becomes unachievable by unexpected events, making the performance of the contract essentially pointless. It can happen at any point throughout the contract’s execution. A contract is frustrated and voids under Section 56 of the Indian Contract Act, 1872, if an unforeseeable occurrence renders performance impossible or materially changes the nature of the contract. In simpler terms, the doctrine of frustration deals with situations where performance becomes impossible.

DISCHARGE BY SUPERVENING IMPOSSIBILITY OF PERFORMANCE

Supervening Impossibility of Performance happens when a contract formation-related unpredictable occurrence results in performance impossible. This kind of impossibility has a direct impact on the performance of the contract, resulting in its discharge. It deals with situations in which the parties could not have predicted events at the time of contracting, making the performance of the contract impossible. The contract is deemed void when such unanticipated developments render performance impossible. This denotes that no party is responsible for non-performance and that the parties’ responsibilities are fulfilled. This is also covered by Section 56 of the Indian Contract Act, 1872.

There are some exceptions to the supervening impossibility of performance that are not accepted:

Commercial Impossibilities: Supplier facing massive price hikes for material, making the contract unprofitable but not legally impossible to perform.
Self-Induced Impossibilities: When a contractor skips to renew their permits, they are the reason for their own failure to complete the work—not outside influences.
Inherent or Foreseeable Risks: A construction project in a flood-prone area involves inherent risks like potential flooding, which are foreseeable.
Failure of a third party: If a mill fails to produce goods, the promisor is still liable for breach.
Failure of one object: similarly, it happens in multi-object contracts.

CASE LAWS

In this case, Lucky Bharat Garage Pvt Ltd v. South Eastern Coalfields Ltd. (2011),[12]a common carrier was required to assure the safety of commodities against all risks, excluding acts of God or state rivals. Sadly, following Smt. Indira Gandhi’s murder, a mob set fire to the assets he was entrusted with. Although, the contract included a risk, he was held responsible for the devastated conditions.
In the case of Robinson v. Davison (1871),[13] an artist promised to perform at a concert for a specified remuneration. She fell ill before she could perform her obligation. This led to the frustration of the contract.
The Hon’ble Supreme Court of India, in the Mohd. Iqbal Khanday v. Abdul Majid Rather 1994 [14] case held that the doctrine of impossibility of performance can be legitimate.
In the case of Mugneeram Bangur and Co. v. Gurbachan Singh 1965,[15] the Hon’ble Supreme Court of India has interpreted the doctrine of frustration and explained the concept of supervening impossibility, which should not be absolute but must lead to an impracticable performance for which neither of the parties is responsible.
In National Insurance Co. Ltd. v. Bhogara Polyfab Pvt. Ltd. (Supra) 2009[16], the SC has held that “When a contract has been fully performed, there is a discharge of the contract by performance, and the contract comes to an end. In regard to such a discharged contract, nothing remains-neither any right to seek performance nor any obligation to perform. In short, there cannot be any dispute between the parties to the contract.

CONCLUSION

A legally enforceable agreement with mutual obligations, a contract, must contain some fundamental components, including an offer, acceptance, consideration, permission from both parties, legal capacity, and a legitimate goal. Contracts are agreements that are legally enforceable, according to both the Indian Contract Act of 1872 and Black’s Law Dictionary. The Indian Contract Act of 1872 establishes a precise framework for comprehending contract creation, performance, and discharge.

There are various ways in which a contract can be discharged, or the contractual obligations might be terminated. These include lapse of time, as defined by statutory limitations; mutual agreement, which may involve novation or revision; performance, when all obligations are met; and operation of law, which deals with situations like insolvency or modifications to the law. Furthermore, as stated in Section 56 of the Indian Contract Act, 1872, contracts may be discharged by impossibility of performance, whether it be initial or supervening. Another significant is frustration, which is what happens when unexpected events make performance of the contract meaningless.

Understanding these modes of discharge ensures that parties are aware of how and when their contractual obligations can end, whether through fulfillment, mutual consent, legal constraints, or unforeseen circumstances. This comprehensive view of contract discharge maintains the balance and enforceability of agreements, adapting to evolving situations and legal interpretations.

REFERENCES

[1] Bryan A Garner’s Black Law Dictionary 8^th Edition, 2004 (page no. 970)

[2] Bryan A Garner’s Black Law Dictionary 8^th Edition, 2004 (page no. 971)

[3] Indian Contract Act, 1872, Section 2(h), Act no. 9 of 1872 (India)

[4] Indian Contract Act, 1872, Section 10, Act no. 9 of 1872 (India)

[5] Bryan A Garner’s, Black Law Dictionary 8^th Edition, 2004 (page no 1369)

[6] Discharge of Contract: Meaning, Modes and Exceptional Cases (Last Update: Mar 15, 2024) https://www.geeksforgeeks.org/discharge-of-contract-meaning-modes-and-exceptional-cases/

[7] The Indian Contract Act, 1872, Section 37, Act No. 9 of 1872 (India)

[8] Text 1.1 Introduction https://ugcmoocs.inflibnet.ac.in/assets/uploads/1/201/6569/et/L13%20-%20Text200314101003034949.pdf

[9] https://www.geeksforgeeks.org/discharge-of-contract-meaning-modes-and-exceptional-cases/

[10] Limitation Act, 1963, Section 2(j), Act No. 36 of 1963 (India)

[11] https://blog.ipleaders.in/discharge-of-contract-by-operation-of-law-and-lapse-of-time/#Lapse_of_time

[12] Lucky Bharat Garage Pvt Ltd v. South Eastern Coalfields Ltd. 2011 LawSuit (Chh) 203

[13] Robinson v Davison (1871) LR 6 Exch 269

[14] Mohd. Iqbal Khanday v. Abdul Majid Rather 4 SCC 34

[15] Mugneeram Bangur & Co. v Gurbachan Singh 2 SCR 630

[16] National Insurance Co. Ltd. V. Bhogara Polyfab Pvt. Ltd. (Supra) 1 SCC 267 19

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