Contractual Performance and Discharge
- Legal Amenity
- Jul 21
- 4 min read
Contracts are at the heart of all commercial and legal relationships. But forming a valid contract is only the beginning. The real value of a contract lies in its performance—the fulfillment of contractual obligations by the parties involved. Once these obligations are fulfilled or legally terminated, the contract is considered discharged. Understanding how and when contracts are performed and discharged is critical for legal compliance and risk mitigation.
This blog delves into the meaning, types, and implications of contractual performance and discharge under Indian law.
What Is Contractual Performance?
Performance of a contract refers to the execution of obligations by the parties as agreed. It involves doing what was promised under the terms of the contract.
Types of Performance
Actual Performance:
This occurs when both parties fulfill their obligations precisely as agreed in the contract. Once performance is complete, the contract is discharged. Example: A supplier delivers goods on time and the buyer makes payment as agreed.
Attempted Performance (Tender):
When a party offers to perform their part but is prevented from doing so by the other party, it is known as attempted or tender performance. Under Section 38 of the Indian Contract Act, 1872, such a valid tender is considered equivalent to performance, and the party is discharged from further liability.
What Is Discharge of Contract?
Discharge of a contract means the termination of contractual obligations. When a contract is discharged, the parties are no longer bound by its terms. Discharge can happen in several ways, each with different legal implications.
Modes of Discharge of Contract
1. By Performance
The most common and straightforward mode of discharge. When both parties perform their respective obligations completely, the contract stands discharged.
Example: Completion of a construction project as per contract terms.
2. By Mutual Agreement
Contracts can be discharged if both parties agree to end their obligations. This includes:
Novation: Substitution of a new contract or party in place of the original one (Section 62).
Rescission: Mutual cancellation of the contract.
Alteration: Change in one or more terms of the contract by mutual consent.
Example: A lender and borrower agree to extend the repayment period and revise terms.
3. By Impossibility of Performance (Frustration)
When an unforeseen event makes it impossible to perform the contract, it is discharged by frustration (Section 56).
Conditions for frustration:
The event must be unforeseen.
The event must render the contract impossible or illegal to perform.
The impossibility must not be due to fault of either party.
Example: A concert contract becomes void due to government-imposed lockdown.
4. By Lapse of Time
Contracts must be performed within a stipulated time. If not, they may become void or unenforceable due to the law of limitation.
In India, the Limitation Act, 1963 prescribes time limits for filing suits related to breach of contract (generally 3 years from the date of breach).
5. By Operation of Law
Contracts may be discharged by law due to:
Death or insolvency of a party (in personal contracts).
Merger of rights: When inferior rights under one contract merge into superior rights under another.
Unauthorized material alteration of a written contract.
6. By Breach of Contract
When a party fails to perform their obligations, the other party may treat the contract as discharged and claim remedies.
Types of Breach:
Actual Breach: Occurs when a party refuses or fails to perform at the time performance is due.
Anticipatory Breach: One party declares in advance that they will not perform their obligation.
Example: A supplier informs the buyer before delivery date that goods won’t be supplied.
Consequences of Discharge
Once a contract is discharged:
Parties are no longer legally bound by the obligations of the contract.
In case of breach, the injured party may seek damages, specific performance, or injunction, depending on the circumstances.
In frustration, benefits received prior to discharge may have to be restored under the doctrine of restitution.
Indian Legal Framework
Key provisions under the Indian Contract Act, 1872 relevant to performance and discharge include:
Section 37: Obligation of parties to perform.
Section 38: Effect of refusal to accept offer of performance.
Section 39: Effect of refusal to perform the promise.
Section 56: Agreement to do an impossible act (frustration).
Section 62-67: Discharge by agreement or waiver.
Notable Judicial Decisions
Satyabrata Ghose v. Mugneeram Bangur & Co. (1954) Clarified that frustration applies only when performance becomes impossible, not merely inconvenient.
Alopi Parshad & Sons Ltd. v. Union of India (1960) Held that commercial hardship does not discharge a contract unless performance becomes impossible.
Krell v. Henry (UK case) Established that frustration can apply when the underlying purpose of the contract is destroyed.
Best Practices for Ensuring Performance
To reduce the risk of non-performance and breach, parties should:
Define clear obligations, timelines, and milestones.
Include a force majeure clause to handle unforeseen events.
Provide for dispute resolution mechanisms.
Regularly monitor contract execution.
Conclusion
Understanding contractual performance and discharge is essential for individuals and businesses alike. Contracts are binding legal instruments, and fulfilling their terms is critical to maintaining trust and avoiding disputes. However, unforeseen circumstances or mutual decisions may bring a contract to an end. Knowing how contracts are performed and discharged ensures that parties are well-prepared to navigate obligations, legal consequences, and remedies in a timely and compliant manner.
Whether you're drafting, executing, or terminating a contract, legal awareness and diligence are key to protecting your interests.
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FAQs
Q1: What is meant by contractual performance in law?
Contractual performance refers to the fulfilment of contractual obligations by parties as agreed in a legally binding contract.
Q2: How can a contract be discharged under Indian Contract Law?
A contract can be discharged through performance, mutual agreement, breach, impossibility, or operation of law.
Q3: What is the difference between performance and discharge of a contract?
Performance is the act of fulfilling contract terms, while discharge means the end of contractual obligations.
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