Discharge by Agreement of Contract(Contract-1)

8/17/2019 Discharge by Agreement of Contract(Contract-1)

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Discharge of Contract by Agreement

With Regards, Submitted By:

Prof. Jyoti Sharma DivyanshSharma

A!S "a# Schoo$ B.B.A. ".".B%Sem&'(

A!S )niversity

Arang, *u$$u, Rai+ur

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AC-W"/D*//-!

The success & final outcome of this project required a lot of guidance &

assistance from many people & we are extremely fortunate to have got this all

along the completion of my project work.

I respect & thank iss. Jyoti Sharma for giving me an

opportunity to do the project work on 0Discharge of Contract by

Agreement1& providing me all support & guidance which made me complete

the project.

I am extremely grateful to you for providing such a nice support & guidance

though you had busy schedule.

I am thankful to you & fortunate enough to get constant

encouragement support & guidance from all Teaching staff of different

!epartment which helped us in successfully completing my project work.

"lso I could like to extend my sincere regards to all the non#

teaching staff of department of library for their timely support.

Divyansh Sharma

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!ab$e of Content

Page -o.

2. 3ntroduction & & & & & & & & & & & & & & & & & & & & & & & & &

4

'. Discharge by Agreement of Contract & & & & & & &

5&26

3. What is Contract7

33. What is Agreement7

333. What is the difference bet#een a Contract and an Agreement7

38. Discharge of Contract by Agreement or utua$ Consent

8. Case Cited

9. Bib$ogra+hy & & & & & & & & & & & & & & & & & & & & & & & & &

& 2

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3ntroduction

The duties under a contract are discharged when there is a legally binding

termination of such duty by a oluntary "ct of the parties or by operation of law.

"mong the ways to discharge a contractual duty are impossibility or impracticability

to perform personal services because of death or illness' or impossibility caused by

the other party.

The two most significant methods of voluntary discharge are "ccord and(atisfaction and novation. "n accord is an agreement to accept some performance

other than that which was previously owed under a prior contract. (atisfaction is the

performance of the terms of that accord. )oth elements must occur in order for there

to be discharge by these means.

" novation involves the substitution of a new party while discharging one of the

original parties to a contract by agreement of all three parties. " new contract is

created with the same terms as the original one but the parties are different.

*ontractual liability may be voluntarily discharged by the agreement of the parties

by estoppel and by the cancellation intentional destruction or surrender of a

contract under seal with intent to discharge the duty.

The discharge of a contractual duty may also occur by operation of law through

illegality merger statutory release such as a discharge in bankruptcy and objectiveimpossibility. +erger takes place when one contract is extinguished because it is

absorbed into another.

There are two types of impossibility of performance that discharge the duty of

performance under a contract. Subjective impossibility is due to the inability of the

individual promisor to perform such as by illness or death. Objective impossibility

means that no one can render the performance. The destruction of the subject matter

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of the contract the frustration of its purpose or supervening impossibility after the

contract is formed are types of objective impossibility. -Impracticability- because of

extreme and unreasonable difficulty expense injury or loss involved is considered

part of impossibility.

Discharge by Agreement of Contract

What is Contract7

"greements between two entities creating an enforceable obligation to do or to

refrain from doing a particular thing. The purpose of a contract is to establish the

agreement that the parties have made and to fix their rights and duties in accordance

with that agreement. The courts must enforce a valid contract as it is made unless

there are grounds that bar its enforcement.

(tatutes prescribe and restrict the terms of a contract where the general public is

affected. The terms of an insurance contract that protect a common carrier are

controlled by statute in order to safeguard the public by guaranteeing that there will

be financial resources available in the event of an accident.

The courts may not create a contract for the parties. hen the parties have no

express or implied agreement on the essential terms of a contract there is no

contract. *ourts are only empowered to enforce contracts not to write them for the

parties. " contract in order to be enforceable must be a valid. The function of the

court is to enforce agreements only if they exist and not to create them through the

imposition of such terms as the court considers reasonable.

It is the policy of the law to encourage the formation of contracts between

competent parties for lawful objectives. "s a general rule contracts by competent

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persons equitably made are valid and enforceable. 0arties to a contract are bound

by the terms to which they have agreed usually even if the contract appears to be

improvident or a bad bargain as long as it did not result from raud duress or

2ndue Influence.

The binding force of a contract is based on the fact that it evinces a meeting of

minds of two parties in 3ood aith. " contract once formed does not contemplate a

right of a party to reject it. *ontracts that were mutually entered into between parties

with the capacity to contract are binding obligations and may not be set aside due to

the caprice of one party or the other unless a statute provides to the contrary.

What is Agreement7

" meeting of minds with the understanding and acceptance of reciprocal legal rights

and duties as to particular actions or obligations which the parties intend to

exchange' a mutual assent to do or refrain from doing something' a contract.

The writing or document that records the meeting of the minds of the parties. "n

oral compact between two parties who join together for a common purposeintending to change their rights and duties."n agreement is not always synonymous

with a contract because it might lack an essential element of a contract such as

consideration.

What is the difference between a Contract and an

Agreement?

Contract

1. " *ontract is defined under (ec.$4h5.

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$. " *ontract is an agreement enforceable at law.

%. Its scope is limited.

,. 7nly valid agreement are called

/. " contract is enforceable.

6. " contract arises out of an agreement. Therefore a contract includes an

agreement.

8. " contract must have all the essentials of a valid contract like consideration

capacity free consent etc.

Agreement

1. "n agreement is defined under (ec.$4e5

$. 9very promise or set of promises forming consideration for each other is an

agreement.

%. Its scope is very wide.

,. "n agreement and be both legal or illegal

/. "n agreement may or may not be enforceable.

6. "n agreement does not arise out of a contract. Therefore an agreement does not

include a contract.

8. "n agreement has only an offer and its acceptance. It need not have other

essentials.

Discharge of Contract by Agreement or Mutual Consent

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(ince a contract is created by means of an agreement it may also be discharged by

another agreement between the same parties. (ections 6$ and 6% of *ontract

"ct1:8$ deal with this subject and provide for the following methods of

discharging a contract by mutual agreement;

2. -ovation:

(ection 6$ of the *ontract "ct1:8$ provides that -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.- s. /??? and writes a promissory

note in favour of @ for % months. "fter % months = goes to @ and expresses his

inability to pay the amount. = writes a new promissory note for >s. /??? the old

promissory note is discharged by the new one. This novation is between the old

parties i.e. = and @.

The following are the essential characteristics of novation;

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henever novation takes place the old contracts become completely extinguished

and are not to be performed.


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material alteration is one which alters the legal effect of the contract e.g. a change

in the amount of money to be paid or a change in the rate of interest. In material

alteration e.g. correcting a clerical error in figures or the spelling of a name has no

effect on the validity of the contract and does not amount to alteration in thetechnical sense.

"lteration may be mutual i.e. bilateral and unilateral.

4i5 )ilateral alteration may take place when both the parties to a contract agree to

alter the terms of the contract.

4ii5 2nilateral alteration takes place when alteration is done by one of the partieswithout the consent of the other. It is also called unauthoriBed alteration. " unilateral

alteration of material nature will discharge the other party from his liability.

3enerally this rule applies to negotiable instruments.

4. Remission:

>emission means acceptance of a lesser performance that what was actually due

under the contract. "ccording to section 6% of *ontract "ct1:8$ a party may

dispense with or remit wholly or in part the performance of the promise made to

him. Ce can also extend the time of such performance or accept instead of it any

satisfaction which he deems fit. " promise to do so will be binding even though

there is no consideration for it.

Dapur *hand 3odha vs. +r. s.

$8 lakhs to D. (ince Cyderabad had been taken over by the Indian 3overnment a

committee was appointed to clear matters. It offered >s. $? lakhs to D who accepted

in full satisfaction of the claim of >s. $8 lakhs. Eater on D filed a suit for the

recovery of the balance. The (upreme *ourt held that D could not do so as he had

accepted $? lakhs in full satisfaction.

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5. Satisfaction:

These two terms are used in 9nglish Eaw but find no place in Indian Eaw.

"ccording to 9nglish Eaw a promise to accept less than what is due under an

existing contract is unenforceable because it is not supported by consideration. )ut

where the lesser sum is actually paid or lesser obligation actually performed and

accepted by the promise it discharges t the original contract. In other words where

a lesser sum is actually paid than what is due under the existing contract the new

contract is called FaccordF and actual payment is called FsatisfactionF.

3$$ustration:

= purchased a house from @ and agreed to pay >s. /???? within %? days. = failed

to pay @ at the end of the period and a new agreement was entered into whereby =

was to deliver 1? tons of cotton in full payment of the debt. @ in this case may

recover his debt of >s. /???? under the original contract at any time before the

delivery of cotton to him. "n accord unless executed so as to satisfy the contract

shall be of no avail.

;. Discharge by Waiver:

aiver means giving up or foregoing certain rights. hen a party agrees to give up

its rights or forego its rights the contract is discharged and the other party is

thereupon released from his obligations. or example @ employs G to paint a

picture for him. Eater on @ forbids him from doing so. G is no longer bound to

perform the promise.


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= was a tenant of @Fs house. = purchased this house. =Fs tenancy right is merged

with his ownership rights i.e. tenancy agreement will come to end when = becomes

the owner of the house. Tenancy right is an inferior right as compared to the

ownership right which is a superior right.

Discharge by +eration of "a# :

" contract may be discharged independently of the wishes of the parties i.e. by

operation of law. This includes discharge.

" contract may be discharged independently of the wishes of the parties i.e. by

operation of law. This includes discharge;

4a5 )y death 4as already discussed5.

4b5 )y merger 4as already discussed5.

4c5 )y rights and liabilities becoming vested in the same person where the rights and

liabilities under a contract vest in the same person for example when a bill of

exchange gets into the hands of the acceptor the other parties are discharged.

4d5 )y Insolvency. 2pon insolvency the rights and liabilities of the insolvent are

transferred to the 7fficial "ssignment or 7fficial >eceiver as the case may be.

hen a person is adjudged insolvent he is released from performing his part of the

contract by law. The order of discharge gives a new lease of life to the insolvent and

he is discharged from all obligations arising from all his earlier contracts.

4e5 )y unauthorised material alteration of the contract. In a written contract if the

promisee or his agent makes any material alteration intentionally and without the

consent of the promisor the contract is discharged. (uch alteration entitles the

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promisor to rescind the contract. +aterial alteration changes the character of the

contract or alters the rights and liabilities of the parties to the contract. F"ny

alteration is material which affects the substance of the contractF. It varies the legal

effect of the instrument. 9xamples of material alteration include an alteration in 4i5the amount of money to be paid 4ii5 the time of payment 4iii5 the place of payment

4iv5 the names of the parties etc. In case of a material alteration the party making

the alteration cannot enforce the agreement either in its original form or in its altered

form.

"lterations which are not material and which do not affect the rights and liabilities

of the parties or which are made to carry out the common intention of the parties or

which are made with the consent of the parties to a contract and do not affect the

validity of the contract. or instance a correction of electrical errors in words and

figures or correction of the spelling of a name of a party to the contract etc. have no

effect on the validity of the contract.

3$$ustration :

or example * and entered into a contract of carriage by sea whereby * agreed

that his ship would sail from "msterdam on +arch 1/ th next to Eiverpool and would

there load a cargo to be provided by . "fter the singing of the written contract 4i.e.

the charter 0arty5 the broker who acted for * wrote in after -+arch next- the words

4i.e. the charter 0arty5 the broker who acted for * wrote in after -+arch next- the

words -wind and weather permitting-. This was held to be a material alteration and* was precluded from relying on the charter party in an action against on his

refusal to supply the cargo.

In the famous case of "nanthrao vs. Dandikanda it was held that the document

though altered could be used as proof of the transaction and the creditor might be

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allowed to claim refund to money actually advanced by him under section 6/ of the

*ontract "ct which is based on the 9quitable !octrine of >estitution

Case Cited

2.Char$es Ric=ards "td v ++enheim >25?@ 2 A$$ /R 4'?

*ourt of "ppeal

>ickards agreed to build a car for 7ppenheim within seven months time being of

the essence of the contract. The seven months began to run from $? "ugust 1A,8.

The car was not ready by $? +arch 1A,: 4the last date for delivery5. 7ppenheim did

not cancel the contract as he was entitled to do so but instead he waived his right as

regards the stipulation of time by asking for delivery in time for "scot. The car wasnot ready for "scot and on $A Hune 7ppenheim wrote to >ickards saying

-urther to my conversation with +r +usk today I regret that I shall be

unable unless my plans change to accept delivery of the >olls you are

making for me after $/ Huly. or six months I have had a reservation to take

a car abroad on % "ugust for my holiday and it would appear to me to be

impossible for me to alter this date. I shall therefore have to buy another

car.-

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The car was still not ready for that date so 7ppenheim bought another car.

The issue before the *ourt of "ppeal was whether 7ppenheim having waived his

original right as regards the stipulation of time could Fgo backF on that waiver and

once again make time the essence of the contract.

Judgement:

F... If the defendant as he did led the plaintiffs to believe that he would not

insist on the stipulation as to time and that if they carried out the work he

would accept it and they did it he could not afterwards set up the stipulation

in regard to time against them. hether it be called waiver or forbearance on

his part or an agreed variation or substituted performance does not matter. It

is a kind of estoppel. )y his conduct he made a promise not to insist on his

strict legal rights. That promise was intended to be binding intended to be

acted on and was in fact acted on. Ce cannot afterwards go back on it. That

I think follows from 0anoutsos v >aymond Cadley *orpn. of


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the defendant pressed for delivery time and time again he was assured that he

would have early delivery but he never got satisfaction and eventually at the

end of Hune he gave notice saying that unless the car was delivered by Huly

$/ he would not accept it. The question thus arises whether he was entitledto give such a notice making time of the essence and that is the question

which counsel for the plaintiffs has argued before us... TJhe defendant was

entitled to give a notice bringing the matter to a head. It would be most

unreasonable if having been lenient and having waived the initial expressed

time he should thereby have prevented himself from ever thereafter insisting

on reasonably quick delivery. In my judgment he was entitled to give a

reasonable notice making time of the essence of the matter. "dequate

protection to the suppliers is given by the requirement that the notice should

be reasonable.

The next question therefore is; as this a reasonable noticeK *ounsel for the

plaintiffs argued that it was not. Ce said that a reasonable notice must give

sufficient time for the work then outstanding to be completed and that on

the evidence in this case four weeks was not a reasonable time because it

would and did in fact require three and a half months to complete it. In my

opinion however the words of Eord 0arker of addington in (tickney v

Deeble apply to such a case as the present just as much as they do to a

contract for the sale of land. Eord 0arker said;

-In considering whether the time so limited is a reasonable time the

court will consider all the circumstances of the case.


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by no means the only relevant fact. The fact that the purchaser has

continually been pressing for completion or has before given similar

notices which he has waived or that it is specially important to him to

obtain early completion are equally relevant facts...-

To that statement I would add in the present case the fact that the original

contract made time of the essence. In this case not only did the defendant

press continually for delivery not only was he given promises of speedy

delivery but on the very day before he gave the notice he was told by the

sub#contractorsF manager who was in charge of the work that it would be

ready within two weeks. Ce then gave a four weeksF notice. The judge found

that it was a reasonable notice and in my judgment there is no ground on

which this court could in any way differ from that finding. The

reasonableness of the notice must of course be judged at the time at which it

is given. It cannot be held to be a bad notice because after it is given the

suppliers find themselves in unanticipated difficulties in making delivery.

The notice of Hune $A 1A,: was therefore a perfectly good notice so as to

make time of the essence of the contract...

The case therefore comes down to this. There was a contract by the

plaintiffs to supply and fix a body on the chassis within six or seven months.

They did not do it. The defendant waived that stipulation. or three months

after the time had expired he pressed them for delivery asking for it first for "scot and then for his holiday abroad. )ut still they did not deliver it.

9ventually at the end of Hune being tired of waiting any longer he gave a

four weeksF notice and said; -"t all events if you do not supply it at the end

of four weeks I must cancel- and he did cancel. I see no injustice to the

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plaintiffs in saying that that was a reasonable notice. Caving originally

stipulated for six to seven months having waited eleven months and still not

getting delivery the defendant was entitled to cancel the contract.F

'. *iti )ank 1A/% *al 6,$

. +aharashtra (tate 9lectricity ... vs (terlite Industries 4India5 Etd. on18 ebruary $??? "I> $??? )om $?,

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Bib$iogra+hy

1. ###.indian=anoon.org

2. ###.sccon$ine.co.in

3. ###.$a#guru.com

4. Contract and S+ecific Re$ief by Avtar singh

1A

Discharge by Agreement of Contract(Contract-1)

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