An Assignment on

Discharge of Contracts

Legal Aspects of Infrastructure Business

Submitted to: Submitted by:

Dr. R. K. Singh Raj Shah

Adani Institute of Infrastructure Management PGDM-IM, Roll no: 32
Aim:

The aim to study this particular topic is how the contract gets discharge between parties that
in which circumstances the parties free from performing their obligations

Objective:

The objective is to study this topic to understand with examples that in how many ways the
contract gets discharge.

Research Question:

 What is discharge of contract?

Discharge of a contract means termination of a contract. It is the act of making a contract or

agreement null. A discharged contract refers to contract that is fully performed.

 Discharge from a Contract:

There are many ways through which party can be discharged from a contract. Best way to do
it is by completing or executing the contract. On the other hand, there are certain types of
ways which are being practiced to get discharged.

A. Discharge by Substitution:
B. Discharge by Rescission:
C. Discharge by Alteration:
D. Discharge by Breach:
E. Discharge by impossibility/ unlawfulness of performance:
F. Discharge by agreement and novation:
G. Discharge by operation of law:
H. Discharge by lapse of time:

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Now, let us understand some of the methods by going through examples.

Methodology:

A. Discharge by Substitution:

Sometimes parties may decide that their contract is not the one they want.  They may
want to replace it with another contract.  If they do, the original contract is discharged
by substitution.

Case – 1

If two parties enter in to a contract and over a period of time they decide to change the
terms and conditions of the contract with the free consent of the both the parties, and
agrees with the new updated terms and condition then the old contract can be said
substituted by the new one. And hence, both the parties can be said discharged from
the old contract.

Case – 2

If two parties enter in to a contract and over a period of time, one party gets
substituted by another one then, this is also called discharge by Substitution.

B. Discharge by Rescission:

The effect of rescinding a contract is to extinguish it and to restore (as far as possible)

the parties to the positions they were in before contracting. A contract that can be
rescinded.

It is basically known as unmaking of a contract. When two parties mutually agrees on

terminating the contract then it can be known as discharge by rescission. This can
only be done with the free consent of the parties involved.

Ex. Raj agrees to supply 100 kg of sugar to Yash. But before supply is made, if Yash
realizes that there is no need of sugar and Raj also agrees on that then, the contract
can be rescinded by mutual consent.

C. Discharge by Alteration:

Alteration of a contract means change in one or more of the terms of a contract.

Alteration is valid, if it is done with the consent of all the parties to the contract. In
such a case, the old contract is discharged.

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 In this, parties which are involved in the contract mutually agrees on changing one or
more terms of the contract, then this alteration discharges the original contract and
creates new contract. However, parties of the new contract remain same.

Ex. Raj agrees to supply 100 kg of sugar to Yash. But before supply is made, if Yash
realizes that there is only 50kg need of sugar and Raj also agrees on that then, the
contract can be said altered by mutual consent.

D. Discharge by Breach:

If a party to a contract fails to perform his obligation according to the time and place
specified, then he is said to have committed a breach of contract.

In this kind of discharge, many ways are possible wiz,

1. Anticipatory Breach:

The breach can be said Anticipatory when the non-Breaching party realizes that
non-performance by the other party is inevitable; this gives the suffering party
provision to sue for the anticipated damages.

Ex. – If Raj and Yash enters in to the contract in which it is stated that, Raj will
supply sugar of 1 ton on 1st Jan 2019 for 100 thousand rupees. Yash pays half
money in advance and contract establish on 1 st Jan 2019. But on 1st of Dec 2019,
Raj informs Yash that he will not be able to supply the sugar, this can be
considered as anticipated breach in which Yash can sue Raj and can ask for
termination of contract and claim subsequent damages.

2. Actual Breach:

The Breach can be said Actual breach when one party refuses or fails to perform
the required task of the contract.

Ex. – If Raj and Yash enters in to the contract in which it is stated that, Raj will
supply sugar of 1 ton on 1st Jan 2019 for 100 thousand rupees. Yash pays half
money in advance and contract establish on 1 st Jan 2017. But on 1st of Dec 2019,
Raj informs Yash that he will not be able to supply the sugar, this can be
considered as actual breach in which Yash can sue Raj for damages.

3. Fundamental Breach:

When two parties enter in to contract and among them any one of them fails to
perform one of the fundamental tasks, then in this case the suffering party can sue
the other party for the damages and also, he or she can terminate the contract also.

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 Ex. – If Raj has entered into a contract with a taxi service company. According to
contract, Taxi Company supposed to provide a Mercedes Benz for picking up the
guest of Raj at the air port and in contract it was written that level of comfort and
company of the car shall exclusively be Mercedes Benz. But instead of that Taxi
Company provided Maruti 800 that too without air condition, now this is known
as fundamental breach of contract where Raj can sue for the damages.

4. Material Breach:

When two parties enter in to a contract on the basis of material specification, and
other party deviates from the expected standard of the material which was to be
provided, then the suffering party can terminate the contract and subsequently can
claim for damages.

Ex. – If a farmer entered into contract with the fertilizer company for providing
pure quality fertilizer. But during delivery time Fertilizer Company provides clay
mixed and low-quality fertilizer. Then farmer can terminate the contract and sue
Fertilizer Company. This kind of breach is known as material breach.

5. Minor or Partial Breach:

When two parties with free consent agrees upon certain terms and condition and
enter in to a contract and one of the parties does not provide or act on the agreed
terms then other party can sue for damages but here the suffering party cannot
terminate the contract though it is a breach.

Ex. – If Raj has entered in to contract with the Taxi Company, that company will
provide Air-conditioned car during the pickup from the air port and also will
provide cold bottle of water for drinking purpose. But instead of that Taxi
Company provides normal water bottle and other offering as per the contract then
in this case Raj can claim for not being offered cold water but he cannot terminate
the contract as the breach is minor.