Introduction -Performance and Discharge of Contract
The concept of performance and discharge of contract lies at the core of the Indian Contract Act, 1872, as it determines how and when the contractual obligations of parties come to an end. Once parties have fulfilled their respective promises under a contract, the contract is said to be discharged by performance. However, there are also other ways by which a contract may be discharged — such as by mutual consent, lapse of time, impossibility, operation of law, or breach of contract.
Thus, the discharge of contract refers to the termination of contractual relations between the parties when their obligations come to an end. The performance of contract, on the other hand, is one of the most common and ideal ways to discharge it.
Performance of Contract
Meaning
According to Section 37 of the Indian Contract Act, 1872, the parties to a contract are bound to perform or offer to perform their respective promises unless such performance is dispensed with or excused under the provisions of the Act.
In simple terms, performance means fulfilling the obligations as agreed in the contract.
Types of Performance
- Actual Performance
- When both parties have completely performed their respective obligations, the contract stands discharged.
- Example: A agrees to sell his bike to B for ₹50,000. A delivers the bike, and B pays the price — contract discharged by actual performance.
- Attempted Performance (Tender of Performance)
- When a party offers to perform their part of the promise but the other party refuses to accept, it is called tender of performance.
- Example: A offers to deliver goods to B as agreed, but B refuses to accept them. A is discharged from his obligation.
By Whom Must Contracts Be Performed? (Sections 40–45)
- By Promisor Himself: If personal skill or confidence is involved (e.g., artist painting a portrait).
- By Agent: If performance is not personal, it can be done by an agent.
- By Legal Representatives: If the promisor dies, and the contract is not personal in nature, his representatives must perform.
- By Joint Promisors: All are jointly and severally liable unless agreed otherwise.
Discharge of Contract
A contract can be discharged in several ways, as discussed below:
1. By Performance
- The most common way — when parties perform their obligations fully, the contract ends.
- Example: A contracts to deliver goods to B for ₹10,000. Upon delivery and payment, the contract is discharged.
2. By Mutual Agreement (Sections 62–63)
Contracts may also be discharged by mutual consent of the parties.
- Novation: Substituting a new contract in place of the old one.
Example: A owes B ₹5,000. A and B agree that C will pay the amount to B. Old contract ends, new begins. - Rescission: Canceling the contract by mutual agreement.
- Alteration: Changing one or more terms with consent.
- Remission: Accepting lesser performance (e.g., accepting ₹4,000 instead of ₹5,000 in full settlement).
- Waiver: Giving up rights under the contract voluntarily.
3. By Lapse of Time
- If a contract is not enforced within the period of limitation prescribed under the Limitation Act, 1963, it becomes unenforceable.
- Example: A has a right to recover money from B within three years. If not enforced, the contract is discharged.
4. By Operation of Law
Contracts can also be discharged automatically by legal operation such as:
- Death: In case of personal contracts.
- Insolvency: When a party becomes insolvent, his contractual obligations are discharged.
- Merger: When inferior rights merge into superior ones.
5. By Impossibility of Performance (Section 56)
- Initial Impossibility: Contract void from the beginning if impossible to perform (e.g., promise to bring a dead person to life).
- Subsequent Impossibility: Contract becomes void after formation due to an event making performance impossible.
- Example: Destruction of subject matter, change of law, or outbreak of war.
- Case Law: Taylor v. Caldwell (1863) – Music hall destroyed before concert; contract discharged due to impossibility.
6. By Breach of Contract
- Actual Breach: When a party fails to perform on due date.
- Anticipatory Breach: When one party declares intention not to perform before the due date.
- Case: Hochster v. De La Tour (1853) – Plaintiff entitled to sue immediately after anticipatory breach.
Also Read: Quasi Contracts
Also Read: Junior Associate Legal Opportunity at Legalmage LLP, Delhi
Consequences of Discharge
Once a contract is discharged, parties are freed from their obligations, and the contract ceases to exist legally. However, if the discharge occurs due to breach, the aggrieved party may claim damages or compensation under Sections 73–75 of the Indian Contract Act.
Case Laws
- Taylor v. Caldwell (1863): Destruction of subject matter — contract discharged.
- Hochster v. De La Tour (1853): Anticipatory breach allowed early action for damages.
- State of Kerala v. Cochin Chemical Refineries Ltd. (1968): Alteration and novation recognized as valid discharge methods.
- Satyabrata Ghose v. Mugneeram Bangur & Co. (1954): Indian interpretation of frustration under Section 56.
Conclusion
The performance and discharge of contract together form the foundation of contractual obligations under Indian law. While performance signifies the fulfillment of promises, discharge represents the end of contractual relations — either through fulfillment, agreement, lapse of time, impossibility, operation of law, or breach. The law seeks to balance fairness by ensuring that once a contract is discharged, neither party can demand further performance unless otherwise agreed.
In essence, discharge of contract brings finality to legal obligations and maintains certainty in commercial and civil transactions.