Discharge of Contracts: formula sheet

Key formulas

Duty to perform

Parties must perform or offer to perform their promises, unless performance is excused by law or the contract

This is the basic rule of Section 37. If the promisor dies, his legal representatives are bound by the promise unless the contract shows a contrary intention, as in a personal contract.

Conditions of a valid tender (Section 38)

(1) Unconditional + (2) at proper time and place, so that the promisee can see the promisor is able and willing there and then to do the whole of his promise + (3) for goods, a reasonable opportunity for the promisee to check that the thing offered is the thing promised

These are the three conditions in Section 38. The offer must cover the whole promise, not a part. If any condition is missing, the tender is not valid and gives no protection. The promisor must also be ready and willing to perform.

Tender of goods

Goods must be offered as per contract, and the promisee must get a reasonable chance to see that they match

The buyer is entitled to check that the goods are the ones agreed.

Tender of money

Exact amount, in legal tender currency, unconditionally offered

The creditor need not give change. Offering a larger note and asking for change is not a valid tender. These exact-amount and no-change rules come from general principles and currency law, not from the text of Section 38.

Effect of refusing a valid tender

Promisor is not responsible for non-performance and does not lose his rights under the contract (Section 38)

The promisor is not in breach and keeps his rights under the contract. Tender is treated as equal to performance only to protect him from liability. It is not discharge by itself and does not extinguish a money debt. The promisee's refusal may be treated as his breach, so the promisor can claim damages.

Who may perform

Promisor himself, his agent or his representative, unless the contract requires personal performance

Personal skill or confidence in the person means only that person may perform.

Novation

Old contract replaced by a new contract (same or new parties)

Needs consent of all parties. Old contract ends and the new one must be valid.

Rescission by agreement

Contract cancelled by agreement of all parties (Section 62)

Parties are released from performing the remaining obligations. Rescission by the innocent party on breach is separate (Sections 39 and 75).

Alteration

Material change in terms made with consent of all parties

It creates a new contract in place of the old one.

Remission (Section 63)

Promisee may dispense with or remit, wholly or in part, performance of the promise

Includes extending time or accepting any satisfaction in place of performance.

Waiver

Voluntary giving up of a right by the person entitled to it

Only the promisee, who owns the right, needs to act.

Section reference

Section 62: novation, rescission by agreement, alteration. Section 63: remission and extension. Sections 39 and 75: rescission on breach

Section 62 deals with replacement, cancellation or change by agreement of all parties. Section 63 deals with the promisee giving up his rights.

Agreement to do an impossible act (Section 56, para 1)

Agreement to do an act impossible in itself = void

Void from the beginning. It is not a valid contract at all. Compensation under para 3 is a separate rule that can apply alongside it, as explained below.

Subsequent impossibility (Section 56, para 2)

Contract valid when made + act later becomes impossible or unlawful (event not caused by promisor) = contract becomes void

Void when the act becomes impossible or unlawful, not from the start.

Promise known to be impossible or unlawful (Section 56, para 3)

Impossibility or unlawfulness exists at the time of the promise + promisor knew (or with reasonable diligence might have known) + promisee did not know = promisor compensates promisee for loss through non-performance

This applies where the act was already impossible or unlawful when the promise was made. The promisor must compensate the promisee for the loss caused by non-performance. Do not mix it up with para 1: para 1 makes the agreement void, while para 3 gives the uninformed promisee a right to compensation.

Restitution on frustration (Section 65)

Benefit received under a void agreement or contract that becomes void must be restored or compensated for

Advance money must generally be returned.

General limitation period for contract claims

Period to sue = 3 years from the date the right to sue arises

This is the usual period for ordinary claims under the Limitation Act, 1963. After it ends, the remedy by suit is barred.

Death of promisor

Personal skill contract: discharged. Other contract: legal representatives bound up to the estate inherited

Always check whether the contract depends on the personal skill of the deceased.

Insolvency

Insolvency order → debtor released from debts as per insolvency law

The contract is discharged to the extent the law releases the insolvent person.

Merger

Inferior right + superior right in the same person, same property → inferior right ends

Typical example: tenant becomes owner of the rented property.

Material alteration

Material alteration without consent → the other party may avoid the contract

Applies to a written contract. A trivial or consented change does not discharge it.

Actual breach

Failure to perform on or after the due date, or during performance

The aggrieved party can sue for damages from the time of breach.

Anticipatory breach

Refusal or self-disablement before the due date

Can be express (clear refusal) or implied (act making performance impossible).

Section 39 rule

Promisor refuses or disables themselves → promisee may end the contract, unless promisee has signalled by words or conduct that the contract continues

The right is an option, not an automatic ending.

Option 1 of the aggrieved party

Rescind the contract + sue for damages immediately

No need to wait for the due date.

Option 2 of the aggrieved party

Keep the contract alive and wait for the due date

Both parties remain bound. The party in breach may still perform, or take advantage of any event that discharges the contract (e.g. frustration), and the aggrieved party cannot then claim damages for the breach.

Section 134 rule

Release or discharge of principal debtor by creditor's contract or act/omission → surety discharged

Applies when the debtor is discharged by the creditor's contract or by a creditor's act or omission that legally discharges the debtor. Release by operation of law alone does not free the surety.

Section 135 rule

Composition, giving time or promise not to sue the debtor, without surety's consent → surety discharged

Applies unless the surety consents or the contract reserves the surety's rights. Contrast with Section 137.

Section 137 rule

Mere forbearance to sue the principal debtor → surety NOT discharged

Applies to simple inaction by the creditor. It is not a promise to give time or not to sue. A contract to the contrary can change this.

Section 138 rule

Release of one co-surety → other co-sureties NOT discharged

The released co-surety also stays responsible to the others for contribution.

Section 139 rule

Creditor's act or omission impairing surety's eventual remedy against the principal debtor → surety discharged

Example: the creditor lets the debtor's security or property be lost, which the surety would later rely on.

Section 141 rule

Creditor loses or parts with security without surety's consent → surety discharged to the extent of its value

Covers security that existed when the guarantee was given.

Revocation rules

Section 130: notice revokes a continuing guarantee for future transactions. Section 131: surety's death revokes it for future transactions unless the contract says otherwise.

Past transactions remain the surety's liability.

Quick revision

• Discharge means the contract ends and the obligations stop.
• Performance must be complete and as agreed to discharge the contract.
• Tender is an offer to perform, and it must be unconditional, at the right time and place, and to the right person.
• Novation replaces the old contract with a new one, or a new party takes the place of an old one.
• Rescission cancels the contract by agreement, and the parties are freed from their duties.
• Impossibility that arises after the contract is made can discharge it, and the parties need not perform.
• A contract can end through the expiry of the period allowed by law for bringing a claim.
• Operation of law covers events such as insolvency of a party and merger of rights.
• Breach occurs when a party fails to perform, and the other party may sue for damages.
• Anticipatory breach happens when a party declares before the due date that it will not perform.
• A surety can be discharged by revocation, by variation of terms without consent, or by release of the principal debtor, as per the Act's rules.

Common mistakes

• Thinking a valid tender discharges the debt itself Fix: Remember that under Section 38 a valid tender relieves the promisor of liability for non-performance. It does not by itself extinguish a money debt.
• Accepting a conditional offer as valid tender Fix: A tender must be unconditional. If the promisor adds a condition the contract does not allow, it fails.
• Treating novation and rescission as the same thing. Fix: Novation always has a new contract in place. Rescission only cancels, with nothing substituted.
• Thinking novation needs consent of only the old parties. Fix: All parties, including the new one, must agree. The creditor must accept the new debtor.
• Treating a rise in cost or price as impossibility. Fix: Remember that hardship, loss or inconvenience does not discharge a contract. Only real impossibility or unlawfulness does.
• Saying a supervening impossibility makes the contract void from the start. Fix: Initial impossibility is void from the beginning. Supervening impossibility makes a valid contract void only from the time the event occurs.
• Thinking death of the promisor always ends a contract. Fix: Split into two: personal skill ends the contract; other contracts bind the legal representatives up to the estate inherited.
• Saying the legal representatives pay from their own pocket. Fix: Remember that liability is limited to the property received from the deceased.
• Calling any refusal an anticipatory breach. Fix: Anticipatory breach needs refusal before the due date. After the due date it is actual breach.
• Thinking the contract ends automatically on anticipatory breach. Fix: The aggrieved party has an option. They may rescind or wait. The contract ends only if they choose to rescind.

Exam tips

• Most questions give a short fact pattern. Hunt for the one defect: condition, part offer, wrong time or place, or no chance to inspect.
• Learn the essentials of a valid tender as a fixed list. Options often reword one of them.
• Do not confuse tender with an offer in contract formation. Tender here means an offer to perform an existing promise.
• When the question says the promisee refused a valid tender, pick the option that protects the promisor.
• If the contract is personal, such as an artist's performance, choose the option that only the promisor can perform.
• Questions often give a short fact pattern and ask you to name the mode. Decide whether a new contract has replaced the old one before looking at the options.
• Remember who must consent: all parties for novation, rescission by agreement and alteration, and only the promisee for remission.
• Watch for the words in place of, cancel, extend and accept less. They point to novation, rescission, extension and remission.