UNIT – 3 DISCHARGE OF CONTRACT

OBLIGATIONS OF PARTIES TO CONTRACTS (SECTION 37):

The parties to a contract must either perform, or offer to perform, their
respective promises unless such performance is dispensed with or excused under
the provisions of the Contract Act or of any other law.
Promises bind the representatives of the promisor in case of death of such
promisor before performance, unless a contrary intention appears from the
contract.
Example : A promises to deliver goods to B on a certain day on payment of `
1,00,000. A die before that day. A’s representatives are bound to deliver the goods
to B, and B is bound to pay ` 1,00,000 to A’s representatives.
Example : A promises to paint a picture for B by a certain day, at a certain price.
A die before the day. The contract cannot be enforced either by A’s
representatives or by B because it involves use of personal skill. It is a contract
of personal nature.
Actual Performance:
Where a party to a contract has done what he had undertaken to do or either
of the parties have fulfilled their obligations under the contract within the time
and in the manner prescribed.

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Example : X borrows ` 5,00,000 from Y with a promise to be paid after 1 month.
X repays the amount on the due date. This is actual performance.
Offer to perform or attempted performance or tender of performance:
It may happen sometimes, when the performance becomes due, the
promisor offers to perform his obligation but the promisee refuses to accept the
performance.
EFFECT OF REFUSAL TO ACCEPT OFFER OF PERFORMANCE
(SECTION 38)
According to Section 38 of the Act - where a promisor has made an offer
of performance to the promisee, and the offer has not been accepted, then the
promisor is not responsible for non performance, nor does he thereby lose his
rights under the contract.
Example : P promises to deliver certain goods to R. P takes the goods to the
appointed place during business hours but R refuses to take the delivery of goods.
This is an attempted performance as P the promisor has done what he was
required to do under the contract.
EFFECT OF REFUSAL OF PARTY TO PERFORM WHOLLY (SECTION 39)
Section 39 provides that when a party to a contract has refused to perform
or disabled himself from performing his promise in its entirety the promisee may
put an end to the contract unless he had signified, by words or conduct his
acquiescence in its continuance.
Example: X, a singer enters into a contract with Y, the manager of a theatre to
sing at his theatres two nights in every week during the next two months, and Y
engaged to pay her Rs. 10,000 for each night’s performance. On the sixth night,
X willfully absents herself from the theatre. Y is at liberty to put an end to the
contract.
BY WHOM A CONTRACT MAY BE PERFORMED (SECTION 40, 41 AND
42)
Person by whom promise is to be performed- Section 40
If it appears from the nature of the case that it was the intention of the
parties to any contract that any promise contained in it should be performed by
the promisor himself, such promise must be performed by the promisor. In other
cases, the promisor or his representatives may employ a competent person to
perform it.

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Example: A promises to pay B a sum of money. A may perform this promise,
either by personally paying the money to B, or by causing it to be paid to B by
another; and if A dies before the time appointed for payment, his representatives
must perform the promise, or employ some proper person to do so.
The following persons also can be performed:
1. Promisor himself
2. Agent
3. Third persons
4. Effect of accepting performance from third person- Section 41
5. Joint promisors (Section 42)
DISTINCTION BETWEEN SUCCESSION AND ASSIGNMENT
SUCCESSION
When the benefits of a contract are succeeded to by process of law, then
both burden and benefits attaching to the contract, may sometimes devolve on the
legal heir.
Example: Suppose, a son succeeds to the estate of his father after his death, he
will be liable to pay the debts and liabilities of his father owed during his life-
time. But if the debts owed by his father exceed the value of the estate inherited
by the son then he would not be called upon to pay the excess. In other words, the
liability of the son will be limited to the extent of the property inherited by him.
ASSIGNMENT
In the matter of assignment, however the benefit of a contract can only be
assigned but not the liabilities thereunder. This is because when liability is
assigned, a third party gets involved therein. Thus, a debtor cannot relieve himself
of his liability to creditor by assigning to someone else his obligation to repay the
debt.
On the other hand, if a creditor assigns the benefit of a promise, he thereby
entitles the assignee to realise the debt from the debtor but where the benefit is
coupled with a liability or when a personal consideration has entered into the
making of the contract then the benefit cannot be assigned.
LIABILITY OF JOINT PROMISOR & PROMISEE
Devolution of joint liabilities (Section 42)
When two or more persons have made a joint promise, then, unless a
contrary intention appears by the contract, all such persons, during their joint

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lives, and, after the death of any of them, his representative jointly with the
survivor or survivors, and, after the death of last survivor, the representatives of
all jointly, must fulfil the promise.
We have seen that Section 42 deals with voluntary discharge of obligations by
joint promisors. But if they do not discharge their obligation on their own volition,
what will happen? This is what Section 43 resolves.
Any one of joint promisors may be compelled to perform – Section 43
When two or more persons make a joint promise, the promisee may, in the
absence of express agreement to the contrary, compel any one or more of such
joint promisors to perform the whole of the promise.
Each promisor may compel contribution – Each of two or more joint promisors
may compel every other joint promisor to contribute equally with himself to the
performance of the promise, unless a contrary intention appears from the contract.
In other words, if one of the joint promisors is made to perform the whole
contract, he can call for a contribution from others.
Sharing of loss by default in contribution – If any one of two or more joint
promisors makes default in such contribution, the remaining joint promisors must
bear the loss arising from such default in equal shares.
Effect of release of one joint promisor- Section 44
The effect of release of one of the joint promisors is dealt with in Section 44
which is stated below:
Where two or more persons have made a joint promise, a release of one of such
joint promisors by the promisee does not discharge the other joint promisor or
joint promisors, neither does it free the joint promisors so released from
responsibility to the other joint promisor or promisors.
Example: ‘A’, ‘B’ and ‘C’ jointly promised to pay ` 9,00,000 to ‘D’. ‘D’ released
‘A’ from liability. In this case, the release of ‘A’ does not discharge ‘B’ and ‘C’
from their liability. They remain liable to pay the entire amount of ` 9,00,000 to
‘D’. And though ‘A’ is not liable to pay to ‘D’, but he remains liable to pay to ‘B’
and ‘C’ i.e. he is liable to make the contribution to the other joint promisors.
Rights of Joint Promisees
The law relating to Devolution of joint rights is contained in Section 45 which is
reproduced below:

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“When a person has made a promise to two or more persons jointly, then unless
a contrary intention appears from the contract, the right to claim performance
rests, as between him and them, with them during their joint lives, and after the
death of any of them, with the representative of such deceased person jointly with
the survivor or survivors, and after the death of the last survivor, with the
representatives of all jointly”.
Example: A, in consideration of ` 5,00,000 rupees lent to him by B and C,
promises B and C jointly to repay them that sum with interest on a specified day
but B dies. In such a case right to demand payment shall rest with B’s legal
representatives, jointly with C during C’s life-time, and after the death of C, with
the legal representatives of B and C jointly.
TIME AND PLACE FOR PERFORMANCE OF THE PROMISE
1. Time for performance of promise, where no application is to be made
and no time is specified - Section 46
2. Time and place for performance of promise, where time is specified and
no application to be made – Section 47
Example: If the delivery of goods is offered say after 8.30 pm, the
promisee may refuse to accept delivery, for the usual business hours are
over. Moreover, the delivery must be made at the usual place of
business.
3. Application for performance on certain day to be at proper time and
place – Section 48
4. Place for the performance of promise, where no application to be made
and no place fixed for performance - Section 49
Example: A undertakes to deliver a thousand maunds of jute to B on a
fixed day. A must apply to B to appoint a reasonable place for the
purpose of receiving it, and must deliver it to him at such place.
5. Performance in manner or at time prescribed or sanctioned by promisee
- Section 50
PERFORMANCE OF RECIPROCAL PROMISE
(i) Promisor not bound to perform, unless reciprocal promise ready and
willing to perform- Section 51
Example: A and B contract that A shall deliver the goods to B to be paid
for by B on delivery. A need not deliver the goods, unless B is ready
and willing to pay for the goods on delivery.
(ii) Order of performance of reciprocal promises- Section 52

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 Example: A and B contract that A shall build a house for B at a fixed
price. A’s promise to build the house must be performed before B’s
promise to pay for it.
(iii) Liability of party preventing event on which the contract is to take effect
– Section 53
Example: A and B contract that B shall execute some work for A for a
thousand rupees. B is ready and willing to execute the work
accordingly, but A prevents him from doing so. The contract is voidable
at the option of B; and if he elects to rescind it, he is entitled to recover
from A compensation for any loss which he has incurred by its non-
performance.
(iv) Effect of default as to that promise which should be first performed, in
contract consisting of reciprocal promises (Section 54)
Example: A hires B’s ship to take in and convey, from Kolkata to the
Mauritius, a cargo to be provided by A, B receiving a certain freight for
its conveyance. A does not provide any cargo for the ship. A cannot
claim the performance of B’s promise, and must make compensation to
B for the loss which B sustains by the non-performance of the contract.
(v) Effects of Failure to Perform at a Time Fixed in a Contract in which
Time is Essential (Section 55)
(vi) Agreement to do Impossible Act(Section 56)
Example: A agrees with B to discover treasure by magic. The agreement
is void.
(vii) Reciprocal promise to do certain things that are legal, and also some
other things that are illegal- Section 57-
Example: A and B agree that A will sell a house to B for ` 500,000 and
also that if B uses it as a gambling house, he will pay a further sum of `
750,000. The first set of reciprocal promises, i.e. to sell the house and
to pay ` 500,000 for it, constitutes a valid contract. But the object of the
second, being unlawful, is void.
(viii) ‘Alternative promise’ one branch being illegal- Section 58
Example: A and B agree that A shall pay B ` 1,00,000, for which B shall
afterwards deliver to A either rice or smuggled opium.
This is a valid contract to deliver rice, and a void agreement as to the
opium.

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APPROPRIATION OF PAYMENTS
Sometimes, a debtor owes several debts to the same creditor and makes
payment, which is not sufficient to discharge all the debts. In such cases, the
payment is appropriated (i.e. adjusted against the debts) as per Section 59 to 61
of the Indian Contract Act.
Application of payment where debt to be discharged is indicated (Section 59):
Where a debtor, owing several distinct debts to one person, makes a
payment to him either with express intimation or under circumstances implying
that the payment is to be applied to the discharge of some particular debt, the
payment, if accepted, must be applied accordingly.
Application of payment where debt to be discharged is not indicated (Section 60):
Where the debtor has omitted to intimate and there are no other
circumstances indicating to which debt the payment is to be applied the creditor
may apply it at his discretion to any lawful debt actually due and payable to him
from the debtor, where its recovery is or is not barred by the law in force for the
time being as to the limitation of suits. However he cannot apply the payment to
the disputed debt.
Application of payment where neither party appropriates (Section 61):
Where neither party makes any appropriation, the payment shall be applied
in discharge of the debts in order of time, whether they are or are not barred by
the law in force for the time being as to the limitation of suits. If the debts are of
equal standing, the payments shall be applied in discharge of each
proportionately.
CONTRACTS, WHICH NEED NOT BE PERFORMED – WITH THE
CONSENT OF BOTH THE PARTIES
1. Effect of novation, rescission, and alteration of contract (Section 62)
• “If the parties to a contract agree to substitute a new contract for it,
or to rescind or alter it, the original contract need not be performed”
2. Promisee may waive or remit performance of promise (Section 63):
• “Every promisee may dispense with or remit, wholly or in part, the
performance of the promise made to him, or may extend the time for
such performance or may accept instead of it any satisfaction which
he thinks fit”. In other words, a contract may be discharged by
remission.

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 3. Restoration of Benefit under a Voidable Contract (Section 64)
• The law on the subject is “When a person at whose option a contract
is voidable rescinds it, the other party thereto need not perform any
promise therein contained in which he is the promisor. The party
rescinding avoidable contract shall, if he has received any benefit
thereunder from another party to such contract, restore such benefit,
so far as may be, to the person from whom it was received”.
4. Obligations of Person who has Received Advantage under Void
Agreement or contract that becomes void (Section 65)
• “When 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.”
5. Communication of rescission (Section 66)
• You have noticed that a contract voidable at the option of one of the
parties can be rescinded; but rescission must be communicated to the
other party in the same manner as a proposal is communicated under
Section 4 of the Contract Act. Similarly, a rescission may be revoked
in the same manner as a proposal is revoked.
6. Effects of neglect of promisee to afford promisor reasonable facilities for
performance (Section 67):
• If any promisee neglects or refuses to afford the promisor reasonable
facilities for the performance of his promise, the promisor is excused
by such neglect or refusal as to any non-performance caused thereby.
DISCHARGE OF A CONTRACT
1. Discharge by performance-Actual Performance & Attempted
erformance
2. Discharge by mutual agreement -Novation, Rescission, Alteration and
Remission
3. Discharge by impossibility of performance – Void Agreement
4. Discharge by lapse of time – National Company Law Tribunal Case
5. Discharge by operation of law – Death, insolvency etc.,
6. Discharge by breach of contract – Non Performance of duty
7. Promisee may waive or remit performance of promise
8. Effects of neglect of promisee to afford promisor reasonable facilities
for performance –
9. Merger of rights – Lessee became owner of the property.

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