Discharge-of-Contract.pptx in the labour legislation

useful for the students and academician

1. Discharge of Contract Samiuddin, Contract Law I

2. Discharge of Contract Discharge of contract means termination of the contractual relationship between the two or more parties who entered into the contract previously. When the rights, obligations and duties of the parties come to an end it is known as the discharge of contract. Discharge of contract also ceases the legally binding power of the contract. Therefore, once a contract has been discharged the parties are no more obligated to each other Samiuddin, Contract Law I

3. Modes of discharge of contract Discharge by performance Discharge by agreement or Consent Discharge by breach Discharge by lapse of time Discharge by supervening impossibility Discharge by operation of law Samiuddin, Contract Law I

4. DISCHARGE BY PERFORMANCE Performance of a contract is the principal and most useful mode of discharge of a contract. Discharge by performance takes place when the parties to the contract fulfill their obligations arising under the contract within the time and in the manner prescribed. Discharge by performance may be : By 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. By attempted performance or tender : When the promisor has made an offer by performance to the promisee but it has not been accepted by the promisee . Samiuddin, Contract Law I

5. DISCHARGE BY AGREEMENT OR CONSENT This means a contractual obligations may be discharged by agreement which may be express or implied . Section 62 and 63 deal with this subject and provide for the following methods of discharging a contract by mutual agreement . Novation (Section 62 ): Where the parties to a contract substitute a new contract for the old contract between the same parties, the old contract is discharged by novation . Example : A owes B Rs. 10,000. A enters into an agreement with B, and give B a mortgage of his (A's) estate for Rs . 5,000 in place of the debt of Rs . 10,000. This is a new contract and extinguishes the old . Samiuddin, Contract Law I

6. Rescission (Section 62) : Its take place, when all or some terms of the contract are cancelled. It may occur by mutual consent. In the case of rescission, only the old contract is cancelled and no new contract comes to exist in its place. Examples : (A) A promises to supply certain goods to B six months after date. By that time, the goods go out of fashion. A and B may rescind the contract. (B) X promises Y to sell and deliver 100 bales of cotton on 1st October at his godown and Y promises to pay for goods on 1st November. X does not supply the goods. Y may rescind the contract . Alteration (Section 62) : Alteration of a contract may take place when one or more of the terms of the contract is/are altered by the mutual consent of the parties to the contract. In such case, the old contract is discharged. Alteration is valid if it is done with the consent of all the parties to the contract. Example : A enters into a contract with B for the supply of a 1,000 bales of cotton at his ware house on 1st July 1980. Later both A and B agree to postpone the date of delivery to 1st September 1980. This change amounts to alteration of the contract. Samiuddin, Contract Law I

7. Remission (Section 63) : It means acceptance of lesser fulfilment of promise made or lesser degree of performance than what was actually due under the contract. Example : A owed large sum of money to B. C offered to pay lesser sum in satisfaction of B's claim on A. B accepted it. It was held that the acceptance was in full satisfaction and B cannot claim balance from A after receiving payment in full satisfaction. [ Kapur Chand vs Himayat Ali Khan AIR 1963]. Waiver : Waiver means the parties to a contract agrees that they shall no longer be bound by contract . Thus, it amounts to releasing a person of certain legal obligation under a contract. Consideration is not necessary for waiver. Merger : It take place when an inferior right accruing to a party under contract merges in to superior right accruing to the same party under the same or some other contract. Ex. lease Samiuddin, Contract Law I

8. Discharge by Impossibility of Performance Impossibility existing at the time of agreement: The first paragraph of Sec. 56 lays down that “an agreement to do an act impossible in itself is void”. This is known as pre-contractual or initial impossibility. It May be Known to the parties Unknown to the parties Samiuddin, Contract Law I

9. Impossibility arising subsequent to the formation of contract: 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 post- contractual or supervening impossibility. Examples: Destruction of subject-matter of contract. Non-existence or non-occurrence of a particular state of things. Death or incapacity for personal service. Change of law or stepping in of a person with statutory authority. Outbreak of war. Samiuddin, Contract Law I

10. IMPOSSIBILITY OF PERFORMANCE – NOT AN EXCUSE In the following cases, a contract is not discharged on the ground of supervening impossibility. Difficulty of performance. Commercial impossibility. Impossibility due to failure of a third person. Strikes, lock-outs and civil disturbance. Failure of one of the objects. Samiuddin, Contract Law I

11. EFFECTS OF SUPERVENING IMPOSSIBILITY When the performance of a contract becomes impossible or unlawful subsequent to its formation, the Contract becomes void (Sec. 56, para 3). Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know to be impossible or unlawful, the promisor must make compensation to the promisee for any loss which the promisee sustains through the non-performance of the promise (Sec.56, para 3). Where an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it (Sec. 65). Samiuddin, Contract Law I

12. DISCHARGE BY LAPSE OF TIME The Limitation Act, 1963 lays down that a contract should be performed within a specified period, called period of limitation. If it is not performed, and if no action is taken by the promisee within the period of limitation. He is deprived of his remedy at law. The Limitation Act, 1963 lays down a period of three years for the enforcement of most types of rights. Samiuddin, Contract Law I

13. DISCHARGE BY OPERATION OF LAW A contract may be discharged independently of the wishes of the parties, i.e., by operation of law. This includes discharge – By death (in the case of contracts for personal service). By insolvency . By unauthorised alteration of the terms of a written agreement. By rights and liabilities becoming vested in the same person. Bankruptcy: The contract may be discharged if a party is declared bankrupt. Samiuddin, Contract Law I

14. DISCHARGE BY BREACH OF CONTRACT Breach of contract means a braking of the obligation which a contract imposes. It occurs when a party to the contract without lawful excuse does not fulfill his contractual obligation or by his own act makes it impossible that he should perform his obligation under it. Breach of contract may be – Actual breach of contract, or Anticipatory or constructive breach of contract. Samiuddin, Contract Law I

15. Actual Breach of Contract It may take place – At the time when the performance is due . Actual breach of contract occurs, when at the time when the performance is due, one party fails or refuses to perform his obligation under the contract. During the performance of the contract . Actual breach of contract also occurs when during the performance of the contract, one party fails or refuses to perform his obligation under the contract. This refusal to perform may be by – Express repudiation (by word or act). Implied repudiation (impossibility created by the act of a party to the contract). Samiuddin, Contract Law I

16. Anticipatory Breach of Contract It occurs when a party to an executory contract declares his intention of not performing the contract before the performance is due. He may do so – By expressly renouncing his obligation under the contract. By doing some act so that the performance of his promise becomes impossible. The rights of the promisee (the party not in breach or the aggrieved party) in case of doctrine of anticipatory breach. He can treat the contract as discharged so that he is absolved of the performance of his part of the promise. He can immediately take a legal action for breach of contract or wait till the time the act was to be done. Samiuddin, Contract Law I