Page 75 - DMGT102_MERCANTILE_LAWS_I

Unit 5: Discharge of Contract

3. By merger. When between the same parties, a new contract is entered into, and a security Notes
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.
4. By the unauthorised 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.
Further, Limitation Act, 1963, provides certain periods for fi ling suits, etc., in certain situations
and if the party entitled to the remedy does not enforce its right within the prescribed time, then
it is deprived of the remedy at law. In a way, this amounts to discharge of contract.

5.7 Discharge of Contracts by Breach

A breach of contract is one party’s failure, without a legal excuse, to live up to any of its promises
under a contract. A contract terminates by breach of contract. If the promisor has not performed
his promise in accordance with the terms of the contract or where the performance is not excused
by tender, mutual consent or impossibility or operation of law, then this amounts to a breach
of contract on the part of the promisor. The consequence of this is that the promisee becomes
entitled to certain remedies. The breach of contract may arise in two ways: (i) anticipatory and
(ii) actual.
Anticipatory breach of contracts. The anticipatory breach of contract occurs when a party
repudiates it before the time fi xed for performance has arrived or when a party by his own act
disables himself from performing the contract.

Example: A contracts to supply B with certain articles on 1st August. On 20th July,
he informs B that he will not be able to supply the goods. B is entitled to sue A for breach of
promise.

The anticipatory breach is also known as ‘breach by repudiation’. Repudiation is a clear statement
by one party before performance is due that it cannot or will not perform a material part of the
contract obligation. Suppose that the day before your friend was to pick up the fiat that your

promised to sell him, you sent your friend a message that you decided to sell the car to someone
else. That would be repudiation or anticipatory breach. It also would be repudiation if your
friend heard from another reliable source that you sold the car to someone else (There would be
no reason to believe that you would get it back to sell the car to your friend tomorrow). However,
it is not repudiation if one party will not perform because of an honest disagreement over the
contract’s terms.

Consequence of anticipatory breach. Where a party to a contract refuses to perform his part of the
contract before the actual time arrives, the promisee may either (i) rescind the contract and treat
the contract as at an end, and at once sue for damages, or (ii) he may elect not to rescind but to
treat the contract operative and wait for the time of performance and then hold the other party
liable for the consequences of non-performance. In the latter case, the party who has repudiated
may still perform if he can.
The anticipatory breach of contract does not by itself discharges the contract. The contract is
discharged only when the aggrieved party accepts the repudiation of the contract, i.e., elects to
rescind the contract. Thus, if the repudiation is not accepted and subsequently an event happens
discharging the contract legally, the aggrieved party shall lose his right to sue for damages.
A agreed to load a cargo of wheat on B’s ship by a particular date but when the ship arrived,
A refused to load the cargo. B did not accept the refusal and continued to demand the cargo.
Before the last date of loading had expired war broke out rendering the performance of the

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