Page 28 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Unit 1: Laws of Contract

(v) Operation of law; Notes

(vi) Breach; and
(vii) Novation and Assignment of Contracts.
Discharge of Contracts by Performance or Tender

The obvious mode of discharge of a contract is by performances that is where the parties have
done whatever was contemplated under the contract; the contract comes to an end. Thus, where A
contracts to sell his car to B for ` 1,85,000, as soon as the car is delivered to B and B pays the agreed
price for it, the contract comes to an end by performance. The tender or offer of performance has
the same effect as performance.
Meaning of Mutual Consent

If the parties to a contract agree to substitute a new contract for it, or to rescind it or alter it, the
original contract is discharged. A contract may terminate by mutual consent in any of the six
ways viz. Novation, rescission, alteration and remission, waiver and merger. Novation means
substitution of a new contract for the original one.

Accord and Satisfaction

These two terms are used in English law. In England, remission must be supported by a
fresh consideration. The ‘accord’ is the agreement to accept less than what is due under the
contract. The ‘satisfaction’ is the consideration which makes the agreement operative. In other

words, ‘satisfaction’ means the payment or fulfilment of the lesser obligation. An ‘accord’ is
unenforceable, but an ‘accord’ accompanied by ‘satisfaction’ is valid and thereby discharges the
obligation under the old contract.

Discharge of Contracts by Impossibility of Performance

A contract may be discharged because of impossibility of performance. There are two
types of impossibility: (i) Impossibility may be inherent in the transaction (i.e., the contract),
(ii) Impossibility may emerge later by the change of certain circumstances material to the contract.
In a limited number of circumstances, ”frustrating” events may be regarded by the courts as
affecting the contract in such a fundamental manner as to render further performance of the
contract “ impossible”.

Examples of Inherent Impossibility: (i) A promises to pay B ` 50,000 if B rides on a horse to
the moon. The contract is void ab initio. (ii) A agrees with B to discover treasure by magic. The
agreement is void ab initio, as there is impossibility inherent therein.
Discharge of a Contract by Operation of Law

Discharge by operation of law may take place in four ways fi rst by death. Death of the promisor
results in termination of the contract in cases involving personal skill or ability. By insolvency,
the insolvency law provides for discharge of contracts under certain circumstances so where an
order of discharge is passed by an insolvency court the insolvent stands discharged of all debts
incurred previous to his adjudication, third by merger. When between the same parties, a new
contract is entered into, and a security of a higher degree or a higher kind is taken, the previous
contract merges in the higher security. Thus a right of action on an ordinary debt would be
merged in the right of suing on a mortgage for the same debt and by the unauthorized alteration
of terms of a written document. Where any of the parties alters any of the terms of the contract
without seeking the consent of the other party to it, the contract terminates.

LOVELY PROFESSIONAL UNIVERSITY 23