- Frustration: If some unexpected event or change in circumstances arises, making the performance of the contract impossible, then the contract is discharged on the ground of frustration. For example, if some building is destroyed due to a natural disaster, the contract to rent that building will be frustrated.

- Operation of Law: A contract may be discharged by operation of law, as in the event of the death of one party or when a particular law prohibits performance under the contract.

This is important to note that the discharge of contract does not mean necessarily that all legal obligation between the parties comes to an end. There may still be legal consequences or obligations which arise even after the discharge of contract, like obligations to pay damages or to return property which was exchanged under the contract.

DIFFERENT METHODS OF DISCHARGE OF CONTRACT

Discharge by performance

A contract can be discharged by performance and it is the most common form of discharge of contract. A contract will be discharged if the duty stated in the contract has been fulfilled by the parties. If only one person in a contract performs the promise which is

mentioned then he alone is discharged. There are two types of discharge of a contract by performance.

Actual performance

Under this case both the parties of the contract are supposed to fulfill their promises. Unless the Indian- Contract Act, 1872 or any law at the time stops the parties from performing their promise. In case any of the party dies or is incapable of fulfilling the promise then the representatives of such party shall be liable to perform the promise given in the contract.

Attempted performance

Where the promisor offers to give his performance under the contract but the promisee refuses to accept the same, then it amounts to discharge by attempted performance.

Discharge by mutual agreement

Here, parties themselves do not perform the promise stated in the contract in case they arrive at a mutual agreement, requiring substituting or altering the existing contract with a new one.

Discharge by Agreement

Where a contract is discharged by mutual agreement, that means it comes to an end because of a mutual agreement by the parties. There are three ways through which discharge of the contract by agreement takes place: novation, recession, and alteration.

Essentials of a valid discharge by agreement

Mutual Consent:

The essential condition for discharge by mutual agreement is that there has to be consent of all the parties to the contract. Section 62, Indian Contract Act, 1872, lays down that where all the parties to a contract agree to substitute a new contract, or rescind or alter it, the original contract ceases to require performance. This consent may be express or implied.

Competence of Parties:

Both parties to the contract of discharge must be competent to contract at the time when they contract to discharge the contract. Section 11 of the Indian Contract Act lays down that every person is competent to contract if he is of the age of majority, of sound mind, and not disqualified from contracting by any law to which he is subject. Like minority, incompetency may render the original contract voidable, and that will affect the validity of the discharge by mutual agreement.

Free Consent:

The consent of the parties to discharge the contract has to be free and not induced by coercion, undue influence, fraud, misrepresentation, or mistake, which are defined under Sections 14 to 21 of the Indian Contract Act. Consent brought about by these vitiating factors may give rise to questions as to the validity of the discharge by agreement.

Consideration:

Certain agreements, such as those for releasing a liability, discharge of contract, merger, or variation, may require consideration in order to make the agreement binding at law. If the contract was founded on consideration, the discharge by agreement ought to be founded on consideration also, unless the parties are rescinding or varying the original contract. There are, however, certain circumstances in which discharge may occur without fresh consideration, provided that there be accord.

Formality in law

Some contracts require special formalities for their discharge to be effective, for instance, being in writing or being attested. These depend on the nature of the original contract and the laws or rules relating to such transactions.

Novation: This occurs where an original contract is replaced by a new one with varied parties and different terms. The consent of all concerned parties is required in novation. Examples include changes in ownership or even when a third takes over an obligation from one of the original parties. It essentially creates a new contract, therefore replacing the original contract and discharging the parties from their obligations under the original. Contract.

Rescission: It occurs when both parties agree to terminate the contract normally because one of the parties has breached the contract terms. Rescission may involve returning consideration already exchanged. In other words, parties go back to their pre-contractual position, and every right or obligation created by a contract is destroyed.

Alteration: Implies the mutual consent of the contracting parties to alter one or more of its terms; for example, a change in price or time of performance, among other things. Upon mutual agreement, alteration becomes part of the original contract and takes the place of its original terms. However, if material in nature, there is a presumption of novation, and another contract enters into being. Thus the contract is formed.

Waiver- The term waiver means giving up a right. A party to a contract may have his rights specifically stated under the contract which also helps to release the other party from the contract and the contract is discharged.

Merger- When an existing inferior right of a party, in respect of a subject matter, merges into a newly acquired superior right of the same person, in respect of the same subject matter, then the previous contract conferring the inferior right stands discharged by the way of merger.

It is important to note that any discharge by agreement requires the consent of parties. Secondly, a new contract, which arises out of novation or alteration, should also be accompanied by consideration, just like for the original contract. Finally, always ensure that the discharge by agreement is well documented to forestall potential misunderstandings and disputes in the future.

By Lapse of Time

Thus, if the performance under the contract is not complete within a period, the contract will be discharged. This will also amount to breach of contract. He can file a suit in the court for enforcement of his rights flowing from the contract in such case. The person can file in the court in regard to The Limitation Act, 1963. If the time period expires as stated in the Act, then there is a discharge of the contract and the promisee cannot enforce the promisor.

By Operation of Law

The provisions of the law do not allow the execution of the contract. This relates to the amendments in the current laws also. But it does not "relate to" the court order or an agreement. The following are the circumstances where the law authorises the termination of the contract:

- Bankruptcy

- Death

- Changes in the unauthorised materials

- Merger

Illustration: Michael Jackson had to perform on a world tour. But he was met with an unfortunate death; this made all his contracts void and null.

By Supervening Impossibility

This states the provisions which were possible at the establishment of the contract would become impossible in the course of time. The following are the impossibilities:

- Physical: This regards to the destruction of the subject matter.

- Practical: It concerns the death of the incapacity of the party.

- Legal: The alterations in the law terminate existence of the foundation of the contract.

Discharge by breach

When a contracting party refuses or fails to perform, or disables himself from performing, or makes the performance of the promise stated in the contract impossible by his conduct, then the contract is said to be discharged by breach. A party to a contract may discharge it by actual breach or anticipatory breach.".

When a default is committed by a party on the due date of performance it amounts to an actual breach and when the party commits a default before the due date of performance it amounts to an anticipatory breach.

Section 38: Performance of Contract

Section 38 of the Indian Contract Act, 1872, refers to the basic method through which discharge of a contract occurs by performance. Under Section 37, the parties to a contract must perform their respective promises, or offer to perform them, unless such performance is excused or dispensed with under the Act, or any other law for the time being in force. Performance may take the form of actual performance of the contractual obligation or attempted performance, where a party comes ready and willing to perform but is prevented from so doing by the act of the other party, or by some unforeseen event.

Section 62: Agreements to alter contracts

It stipulates that a contract may be discharged by mutual agreement of parties either to rescind or alter it. It allows the parties to a contract to agree between themselves to cancel or alter the terms of the contract. Such an agreement is to be between the parties or their duly authorized agents, and it has to satisfy the tests of a valid contract under the Indian Contract Act. This provision makes sure that, on account of changed circumstances or by mutual consent, the parties are able to adjust their contractual obligations.

Section 56: Frustration of Contract

It invokes the doctrine of frustration, relating to the discharge of a contract due to subsequent impossibility of performance or frustration of purpose. It means that the happening of an event after the contract has come into existence renders it void in case of impossibility to fulfill, or radically changes the obligation of performance into something quite different from what the parties agreed or contemplated originally. This section applies in situations when, because of circumstances beyond the control of both parties, further performance of the contract becomes impossible, illegal, or radically different from what was originally contemplated.

Section 108: When contracts become void

It states when the contracts become void under the Indian Contract Act. A contract becomes void when it no longer holds any legally enforceable proposition. Section 2(g) of the Act provides that a contract becomes void upon impossibility, unlawful, or subsequent events which render it void by illegality. In addition to that, a competent court may declare a contract void under certain conditions provided by the law. This makes it clear when the contractual obligation ceases to bind the parties, protecting them from unenforceable agreements.

Exceptional cases when a contract is not discharged

The doctrine of frustration or supervening impossibility does not apply to the following cases mentioned below:

1. In any case, if the situations arise from which the performance of the certain promise mentioned in the contract is very difficult to be performed, then in that situation it makes the promise challenging to be fulfilled but doesn't make

1. the contract discharged.

2. Commercial hardships make the contract unprofitable but it does not discharge a contract.

3. Strikes, lock-outs, civil disturbances and riots do not discharge the contract unless there is a clause in the contract specifying that in such event the contract will be terminated.

4. A contract is not discharged due to the self-induced incapacity of the parties to a contract.

5. A contract founded upon the performance of a third party will not be discharged by the happening of an event brought about by the failure or default of the third party.

THEORIES OF FRUSTRATION OF CONTRACT

The doctrine of frustration is a principle of law that provides relief to parties in cases where an event, unforeseen by them, renders performance of the contract impossible. Various theories have been evolved to explain the doctrine of frustration, including:

According to the Implied Term Theory, the doctrine of frustration is based upon the implied term that the contract will only be performed if the parties can do so. If some unforeseen event makes performance impossible, then the term is implied that the contract shall be discharged.

Common Purpose Theory: This theory is based on the assumption that the doctrine of frustration operates because of the common purpose of the contract. On the off chance that common purpose of the contract is frustrated, at that point, the contract is discharged. For instance, if the contract is for the sale of a particular thing and the thing is before delivery, the common purpose of the contract is frustrated.

Risk Allocation Theory: This theory deduces that the doctrine of frustration is based upon the risk allocation between the parties. In the case of the happening of an unexpected event not allocated to either party, discharge of a contract will ensue. For instance, if a building is destroyed by a natural catastrophe, since the risk of destruction was not allocated to any of the parties, the contract may be frustrated.

Circumstantial Alteration Theory: It has been propounded that the doctrine of frustration is based upon the principle that circumstances under which the contract had been made have changed so much that it is no longer possible to perform the contract. For instance, in a contract for the hiring of a hall for a wedding, if the hall was destroyed by fire, there has been such a change in the circumstances under which the contract was made that the performance of the contract is rendered impossible.

overall, this doctrine of frustration is designed to relieve the parties where an unforeseen event occurs which makes it

that the contract can't be performed. The particular theory of frustration, which applies to a case, would depend upon the circumstances of the case and the particular law in force in that system.

Types of Impossibility

1. Physical Impossibility:

Physical impossibility is a situation when the contract cannot be performed on account of the operation of some natural law, which absolutely renders its performance impossible.

It is governed by Section 56 of the Indian Contract Act. A contract becomes void if its performance becomes impossible due to an event which the promisor cannot prevent. If a contractor agrees to construct a house and the structure is demolished by a natural calamity before he completes the work, the contract would be void due to physical impossibility.

Example: Party A contracts to sell Party B a particular antique frame. Before the delivery date, the frame is irretrievably destroyed. The event is physical impossibility since the very subject matter of the contract has ceased to exist.

2. Practical Impossibility: -

Practical impossibility exists when performance of a contract, though not physically impossible, has become excessively difficult or costly to render performance impracticable.

Section 56 also handles the issue whereby practical impossibility may void a contract if performance becomes excessively burdensome or impracticable due to unforeseen circumstances beyond the control of the parties. For example, if a supplier contracts to deliver goods, but before he can deliver, the goods are stolen and he cannot replace them, the contract performance will be impossible in practice.

Example: Party A contracts Party B to sing at a concert. Performance becomes impossible, even though B is still physically capable of performing due to such unforeseen circumstances as B losing his voice.

3. Legal Impossibility:

Legal impossibility occurs when the performance of a contract, which was lawful at the time it was made, becomes illegal by virtue of a change in the law.

Section 56 also provides that a contract becomes void if, after its formation, it becomes illegal to perform due to a change in law. For example, parties agree on some transaction and then new legislation declares that transaction unlawful, like prohibiting some types of trade. A contract like this would be legally impossible to perform and hence void.

Example: Party A hires party B to deliver a shipment of ivory products to a country. The government later passes a statute forbidding the importation of ivory, making performance of the contract legally impossible for A.

Case laws

Manohur Koyal v. Thakur das 1888 In this case, the defendant did not pay the agreed sum to the plaintiff on the due date mentioned in the contract. However, the defendant promised to pay Rs. 400 to the plaintiff and to execute a fresh kistibundi bond. The plaintiff agreed to this but the defendant failed to pay that amount consequently, the plaintiff sued the defendant. The Calcutta High Court stated that since the new bond was created after the breach of the original contract, therefore the contract cannot be discharged by novation but by breach of contract.

United India insurance Co. Ltd v. M.K.L. Corporation 1996 The Supreme Court held in this case utmost good faith must be observed by the contracting parties and the duty of good faith is of a continuing nature even after the completion of the agreement no material alterations can be made to the contract without the mutual consent of the parties.

Hochster v. De La Tour this case, the contract was made in April by the representative parties. In this case the defendant agreed that the claimant on a foreign tour should act as his courier, due to begin on 1st June but on 11th may, the defendant informed the claimant that his services would not be required. It held that the claimant could sue for damages immediately and he did not have to wait for the performance date.

CONCLUSION

Discharge of a contract can follow several ways: performance, agreement, breach, frustration, and operation of law. Discharge by agreement refers to the mutual termination of a contract by parties thereto, and it is achieved by either novation, rescission, or alteration. Novation involves the creation of a new contract, whereas rescission involves terminating the original contract, thus returning the parties to their pre-contractual position. Alteration may be made to one or more terms of the original contract. If the alteration is material, a new contract may come into being. Discharge by agreement should, however, be by deed documented and consideration desirable. It should be shown that the parties have consented. Different methods of discharge could be facilitated to help parties navigate through the complex world of contracts and avoid future disputes.