Chapter 9

Performance and
Discharge of Contract

The most natural and usual mode of

discharging a contract is to perform it
in accordance with its terms.
Learning Objectives
What does ‘performance of contract’ mean?

Types of Performance

Who Can Demand Performance

Time and Place of Performance

Discharge of a Contract
 WHAT IS PERFORMANCE OF CONTRACT?

Performance of contract means that both the

parties - promisor and the promisee - have
fulfilled their respective obligations, which the
contract placed upon them.
A visits a stationery shop to buy a calculator.
The seller delivers the device and A pays the
price. The contract is said to have discharged
by mutual performance.
 Types of Performance

1. Actual Performance. When a promisor to a contract has

fulfilled his obligation in accordance with the terms of the
contract, the promise is said to have been actually
performed. Actual performance gives a discharge to the
contract and the liability of the promisor ceases to exist.
A agrees to deliver 10 bags of cement at B’s factory and B
promises to pay the price on delivery. A delivers the
cement on the due date and B makes the payment. This is
actual performance.
 Types of Performance
2. Substantial performance. When a promisor to a
contract has fulfilled his obligation with slight
variations in the terms of the contract, the promise
is said to have been substantially performed.
3. Partial performance. This is where one party has
performed the contract, though not completely,
and the other side has shown willingness to accept
the part performed. Partial performance may occur
where there is shortfall on delivery of goods or
where a service is not fully carried out.
4. Attempted Performance:
When one party has performed the obligations but the
other party did not accept the performance of the former.
Eg. A contracted with B to deliver 200 bags of cement on
13th of this month and B will make the payment on the
same day. A delivered as per the promise but B did not
accept A’s delivery. It is attempted performance by A.
 Who can demand performance? Time and
place of performance
• Promisee or the agent of promisee can
demand the performance
• The performance must be made on or within
the specified time and place.
• If there is no time specified then it has to be
made within the reasonable time and place.
 DISCHARGE OF A CONTRACT

Discharge of a contract implies termination of

contractual obligations. This is because when the
parties originally entered into the contract, the rights
and duties in terms of contractual obligations were
set up. Consequently when those rights and duties
are put out then the contract is said to have been
discharged. Once a contract stands discharged,
parties to it are no more liable even though the
obligations under the contract remain uncompleted.
 Modes of Discharging a Contract
A contract is deemed to be discharged, that is
concluded and no longer binding, in the following
circumstances:
• Performance
• Substituted Agreement
• Lapse of Time
• Operation of Law
• Impossibility of Performance
• Breach
 Modes of Discharging a Contract
1 Discharge by Performance. Where both the parties have
either carried out or tendered (attempted) to carry out their
obligations under the contract, this is referred to as discharge
of the contract by performance. Because performance by
one party constitutes the occurrence of a constructive
condition, the other party’s duty to perform is also triggered,
and the person who has performed has the right to receive
the other party’s performance. The overwhelming majority
of contracts are discharged in this way.
Actual, attempted, partial and substantial
2. Discharge of Contract by Substituted Agreement. A contract
emanates from an agreement between the parties. It thus
follows that the contract must also be discharged by agreement.
Therefore, what is required, inevitably, is mutuality. Discharge by
substituted agreement arises when a contract is abandoned, or
the terms within it are altered etc.
Novation, rescission, alteration, remission, waiver
a) Novation. The term novation implies the
substitution of a new contract for the original one.
This arrangement may be either between the same
parties or between different parties. For a novation
to be valid and effective, the consent of all the
parties, including the new one(s), if any, is essential.
Moreover, the subsequent or second agreement
must be one capable of enforcement in law, the
consideration for which is the exchange of promises
not to enforce the original contract.
b) Rescission: It means cancellation or change in
some or more terms and conditions of the
contract without mutual consent. It could be due
to mutual mistakes. E.g. A has to deliver 200 bags
of rice to B on 10th day of next month and B will
pay on 12th day of next month. A did not deliver
on the said date thinking it is 15th day of the next
month. B is discharged from the payment.
• c) Alteration: It means cancellation or change
in some or more terms and conditions of the
contract with mutual consent. E.g. A has to
deliver 200 bags of rice to B on 10th day of
next month and B will pay on 12th day of next
month. A could not deliver on the said date
and informed the same to B. now they both
agreed to change the dates of performance.
d) Remission: the cancellation of partial debt, charge, or
penalty. Eg. A gave a Loan of Rs 300000 to B for a period of 1
year. A pursued B many times for the recovery. B finally
arranged Rs 260000 only and asked A to give 6 months more
to repay the remaining. A remitted Rs 40000 and now B will
not pay the remaining.
e) Waiver: an act or instance of waiving a right or claim. Eg.
Completely waiving off the agriculture loans given to
farmers, fee waiver to the children of employees, fee waiver
to members of a club/organization etc.
3. Lapse of time: time barred debts
4. Impossible to perform: by either party declared alien
enemy/ criminal, destruction of subject matter, any natural
calamities, death or insanity of either parties, etc.
5. By operation of law: by mergers, acquisitions and
takeovers, insolvency, unauthorized alterations
A and B merger
AB comp
A and B. A ACQUIRED B. B’S existence is dissolved.
A
6. Breach of contract:
a) Actual breach: when one party is failed to
perform his obligations on the date and time
of performance without any prior
information to other party.
b) Anticipatory breach: when one party is failed
to perform his obligations and informs in
advance to the other party.