We have already discussed some modes of discharge of contract; the following modes are discussed in detail.
Discharge by impossibility of performance of contract
Agreement to do impossible act (sec. 56)
“An agreement to do an act impossible in itself is void”.
Yasir enters into an agreement with Mr. Faisal to discover gold mines by magic. The agreement is void.
Contract to do act, afterwards becoming impossible or unlawful:
A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the Promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
Illustration regarding–Contracts to do act afterwards become impossible or unlawful:
Mr. Z an exporter enters into a contract with an importer in the foreign country for supply of certain goods at agreed price. The government in exporter’s country before its performance imposes embargo on the export of the agreed product. The contract becomes void when this embargo is imposed.
Compensation for loss through non-performing of act known to be impossible or unlawful:
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, such Promisor must make compensation to such Promisee for any loss which such Promisee sustains through the non- performance of the promise.
A international player enters into a contract with Hockey Club at an agreed package for one year and the player received an advance payment. The player was suffering from knee injury, According to doctors he could not play for two years. The player failed to play for the said club. The Promisor ( player) should make compensation to the Promisee ( Hockey Club) for any loss which the Promisee sustains through the non performance of the agreement..
Some more illustrations:
(a) A agrees with B to discover treasure by magic. The agreement is void
(b) A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The contract becomes void.
(c) A contracts to marry B, being already married to C, and being forbidden by the law to which he is subject to practise polygamy. A must make compensation to B for the loss caused to her by the non-performance of his promise.
(d) A contracts to take in cargo for B at a foreign port. A’s Government afterwards declares war against the country in which the port is situated. The contract becomes void when war is declared.’
(e) A contracts to act at a theatre for six months in consideration of a sum paid in advance by B. On several occasions A is too ill to act. The contract to act on those occasions becomes void.
Stoppage of work by strike: —A strike of the workmen employed in executing work under a contract does not of itself make performance impossible for the purpose of this section.
Frustration of Adventure-War conditions: —Subsequent authority, however, has made it clearer than ever that the literal possibility or otherwise of executing the agreement according to its terms is not an adequate test; it has to be considered whether performance according to the true governing intention of the parties remains possible. But a temporary interruption (such as requisition of a ship for transport of troops) does not necessarily determine the contract. There is no general rule (as suggested by some dicta) that it does not apply to a sale of unascertained goods.
Frustration by Total or Partial Prohibition: —In a state of war many contracts are affected by performance or further performance becoming wholly or in part unlawful. This may be under the general rules against intercourse with the enemy, or may be the result of express executive orders issued under powers of emergency legislation. In principle the question is the same that we have noted above, whether the new state of things is such as the parties provided for or contemplated, and whether further performance, so far as the prohibition is not total, or when it is removed, would really be performance of the same contract. Compulsory suspension of an engineering contract on a large scale, in order to direct the labour to producing munitions of war, has been held to discharge the contractors. So, too a contract to deliver goods may be frustrated by emergency regulations restricting transport. Where after a contract has been made a notification regulating retail prices is passed and the notification does not make the performance of the contract impossible or unlawful, the parties are not discharged from the contract.
Without the promisor’s default: —It is clear that a party, who is himself responsible for the frustrating event, cannot maintain that the agreement is discharged under Section. 56.
Commercial impossibility: —The impossibility referred to in the second clause of this section does not include what is called commercial impossibility. A contract, therefore, to supply freight cannot be said to become impossible within the meaning of that clause merely because the freight could not be procured except at an exorbitant price. So a contractor for bridge tolls has no legal claim for compensation against the District Board if a considerable part but not the whole of the traffic is prohibited by a Government ordinance, or if floods make it impossible to use the bridge for a substantial part of the contract period. A contracted to buy tapestry from B and stated that he intended to resell it in Australia. Imports to Australia were thereafter prohibited. A repudiated the contract. In a suit by B against A for damages, it was contended that the contract was frustrated.
“Becomes unlawful”.—Where a truck owner agreed to carry bales of cotton, but both the owner’s trucks were requisitioned by the military authorities and user thereafter would have been punishable, the contract was held to have been frustrated from the lime of the notice of requisition.
Illegal order of Government making contract impossible of performance—Contract does not become illegal. The unlawfulness contemplated by section 56 of the Contract Act is one which is the result of a valid law, or of a valid order made in exercise of lawful authority. Where the order which hindered the performance of the contract was illegal, the defendants could not place reliance on the District Magistrate’s order to support their plea of frustration of the contracts in suit.
Prohibition of export without registration existing before contract—Goods contracted to be purchased for export—Absence of Registration No. for export not sufficient reason for avoidance of contract. Where the defendant was aware of the existence of the circular requiring Registration and in spite of it he entered into a contract, the plea that the bar came into force on and from 11th February before which their was no bar disqualifying the defendant to export for want of registration number he could not lift the goods, cannot be accepted. Further more, from the Exhibits filed in this case it is clear that the plaintiff was asking the defendant to lift the goods but the defendant was taking time after time. So the plea that the contract could not be fulfilled for the absence of the Registration Number cannot be allowed to defeat the contract; nor did the contract become void in the aforesaid circumstances.
Contract with Government for export of commodity—Delay in issue of export licence resulting in adverse market conditions in importing states—Contract not frustrated. Where a company entered into a contract with the Government for export of cotton but Government delayed the issue of export permit. In the meantime new crop came on the market in the countries to which the cotton was to be exported. The company claimed frustration of the contract by the Government. Held: These facts do not attract the doctrine of frustration. The breach of contract, if any, by the Government was waived. Extension was taken by the appellants to perform the contract. The evidence led by the appellants shows only that after extension was obtained they found that it was not possible to export these goods. This evidence is not enough to establish that the contract became void on account of frustration.
Agreement of sale—Price for sale becoming illegal after execution of contract—Contract becomes void. Where the payment of price at the contracted rate was forbidden by law after the agreement was executed and before it was performed. Such a case is clearly provided for under section 56 which renders the contract void.
A contract to do an act which, after the contract is made, becomes impossible or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. In other words the section contemplates two kinds of impossibility namely physical impossibility and non-self-induced legal impossibility. The doctrine of frustration is founded on the theory of an implied term but in this case there being a clear provision it is not necessary for reading such an implied term into the contract. In the present case it cannot be denied that in view of the Martial Law Regulations the prices fixed under it at which the parties had agreed to supply the goods had become illegal and unlawful. Any one contravening its provisions would be guilty of a penal offence. Thus the contract for this reason was frustrated and in law it was not possible to perform it on the terms agreed upon between the parties. Since the contract had become impossible to perform no responsibility for non-performance of the contract could be placed on the respondents.
Acquisition by Government of land subject of agreement of sale—Agreement of sale is not frustrated—Price fixed by Government may be paid to vendee. —Where there is an agreement of sale of land and subsequently before the completion of the sale, the Government compulsorily acquires the land; the contract of sale is not thereby frustrated. The vendor can enforce it. The vendee is in that case entitled to receive the compensation which the Government undertakes to pay to the owners of land.
Executory contract—No vested rights created by contract—Doctrine of frustration applies to contract on its becoming unenforceable. —Where a contract of sale becomes unenforceable and void because of an amendment of law, and in the circumstances of the case the plaintiff’s contract of lease, though lawful at the time when it was made, has been rendered impossible of performance by the operation of section 75-A of the Act over which the parties to the contract have no control. The said contract cannot be performed or specifically enforced except in violation of the absolute prohibition contained in section 75-A; the performance of that contract has, therefore, been rendered unlawful by the said section. Thus, the doctrine of frustration coming within the purview of the second paragraph of section 56 of the Contract Act comes into play in this case with the result that the plaintiff’s contract of lease has become void and unenforceable.
Frustration—When doctrine is applicable. The question whether frustration of the contract occurs or not depends on the nature of the contract and on the events which have occurred. Therefore in each case the question for consideration will arise, “what was the common intention and a common purpose for entering into a contract anti whether that purpose and intention has been frustrated by supervening circumstances,” and it is not permissible for a Court of law to imply a term which is not consistent with the express term of the contract merely on the ground that parties being reasonable men must be deemed to have provided for a particular event.
Discharge by agreement between the parties to a contract
An agreement between a creditor and debtor, contract shall stand discharged.
Discharge of contract by operation of law.
In case of insolvency of a party to a contract (Adjudicating a party as insolvent by a court of law.); or say by lapse of time under Limitation Act, contract shall stand discharged.
Discharge by breach of contract
“A breach of contract occurs when a party thereto renounces his liability under it, or by his own act makes it impossible that he should perform his obligations under it or totally or partially fails to perform such obligations.”
The failure to perform or renunciation may take place when the time for performance has arrived or even before that, this is provided in section 39 of the Contract Act.
Section 39 is reproduced here under for reference.
“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 has signified by words or conduct, his acquiescence in its continuance”
Effect of refusal of party to perform promise wholly—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 has signified; by words on conduct, his acquiescence in its continuance.
(a) A, a singer,-enters into a contract with B, the manager of a theatre, to sing at his theatre two nights in every week during the next two months, and B engages to pay her 100 rupees for each night’s performance: On the sixth night A willfully absents herself from the theater. B is at liberty to put an end to the contract.
(b) A, a singer, enters into a contract with B, the manager of a theatre, to sign at his theatre two nights in every week during the next two months, and B engages to pay her at the rate of 100 rupees for each night. On the sixth night A willfully absents herself. With the assent of B, A signs on the seventh night. B has signified his acquiescence in the continuance of the contract, and cannot now put an end, to it, but is entitled to compensation for the damage sustained by him through A’s failure to sing on the sixth night.
As to failure in performing other particular terms of a contract, no positive general rule can be laid down as to its effect. The question is in every case whether the conduct of the party in default is such as to amount to an abandonment of the contract or a refusal to perform it, or having regard to the circumstances and the nature of the transaction, to evince an intention not to be bound by the contract. It seems, however, with great submission, that the intention which is material is not that with which the contract is broken, but that with which it was made. Parties can undoubtedly make any term essential or non-essential; they can provide that failure to perform it shall discharge the other party from any further duty of performance on his party, or shall not so discharge him, but shall only entitle him to compensation in damages for the particular breach. Omission to make the intention clear in this respect is the cause of the difficulties, often considerable, which the Courts have to overcome in this class of cases.
There is nothing in this section to confine it to anticipatory refusals; it includes refusal to perform any substantial part of the contract which remains to be performed. But a merely conditional refusal withdrawn
before the time for performance cannot be treated by the other party as final. It has been held the section applies only when the contract is still executory, and the time for performance has not yet arrived. This is
effect restricts, the section to cases of anticipatory breach, or cases of continuing contracts under which obligations remain to be performed, such as installment contracts.
Where two transactions are separate, the repudiation of one cannot affect the other.
A buyer who has refused to receive goods on the ground that they were not tendered within the agreed time cannot afterwards change his ground and raise the objection that in fact the goods were not according to
contract; for the election to rescind, once made, is conclusive.
It may be worth while to add that an unsuccessful attempt to perform a contract which does not disable the promisor from still performing it effectually within the time limited, or a reasonable time, and does not
cause any damage to the promisee, cannot be treated as a refusal. Such an attempt does not itself affect the legal rights of the parties at all.
“Promisee may put an end to the contract.”—The promisee, if he pleases, may treat the notice of intention as inoperative, and await the time when the contract is to be executed, and then hold the other party responsible for all the consequences of non-performance; but in that case he keeps the contract alive for the benefit of the other party as well as his own; he remains subject to all his own obligations and liabilities under it, and enables the other party not only to complete the contract, if so advised, notwithstanding his previous repudiation of it, but also to take advantage of any supervening circumstances
which would justify him in declining to complete it.
On the other hand, the promisee may, if he thinks proper, treat the repudiation of the other party as a wrongful putting an end to the contract, and may at once bring his action as on a breach of it; and in such action he will be entitled to such damages as would have arisen from the non-performance of the contract at the appointed time, subject, however, to abatement in respect of any circumstances which may have afforded him the means of mitigating his loss.” When the promisee has so determined his choice, then,
whether he sues for damages or not, it is not open to the promisor to go back on his refusal and treat the
contract as subsisting. Similarly if he freely and with full knowledge elects not to accept the repudiation, he cannot go back on this election, and sue before the date of performance has arrived. If the law lays down a particular form in which repudiation must take place, it is not open to the promisee to put an end to the contract in any other way.
Measure of damages: —The measure of damages for “anticipatory breach” is not necessarily the same as it would be for a failure or refusal occurring at the time when performance was due. The injured party is under an obligation to take, all reasonable steps to mitigate the loss flowing from the breach.
Situations where a party has lawful excuse for not performing his contractual obligations:

  • Performance becomes impossible
  • Promisor tenders performance but rejected by the promisee
  • One party has made it impossible for the other party to perform.
  • The parties have by agreement permitted non performance.
  • The promisee has accepted partial performance as the performance of the whole contract.
business and labour laws  MODES OF DISCHARGE OF CONTRACT

Consequences of breach of contract:
Compensation for loss or damage caused by breach of contract Sec. 73:
when a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by contract:
When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.
Illustration 1:
Mr. Z (seller) enters into a contract with Mr. Y a purchaser for sale of specified goods as per stipulations of contract. Mr. Z breaks his promise; Mr. Y is entitled to receive from Mr. Z a particular amount as compensation.
Illustration 2:
Mr. Z enters into a contract with a M/S ABC transport company to provide him transport for supply of consignment at different places. The payment to the transport company on account of freight was to be made on making the supplies at given destinations. M/S ABC fails to provide the transport. Z is entitled to recover the compensation on account of inconvenience and expenses
Illustration 3:
Mr. Umer contracts with Mr. Akram to buy his car for Rs 800,000. Mr. Umer breaks his promise. Mr. Akram is entitled to receive compensation from Mr. Umer the excess amount, if any, of the contract price which Mr. Akram can obtain for the said car at the time of breach of contract.

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