National University of Modern Languages

National University of Modern Languages
Subject: Business Law

Class: MBA-4
Submitted by: M. Ahmad Ali
Roll No: L-21206
Submitted to: Brig. (R) Muhammad Saleem
Topic: Discharge of contract and methods of discharge of contract.
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Discharge of contract
A contract is said to be discharged when the obligations created by it come to an end. In other
words, discharge of contract means ' termination of the contractual relationship between the
parties'. There are various modes of Discharge of Contract, a contract may be discharged either
in a positive way (Positive - by performance) or in negative. (Negative - by breach or failure to
perform contractual obligation by either of the parties).
They are as per the following: -

1. Discharge by performance
2. Discharge by agreement or by consent
3. Discharge by impossibility of performance
4. Discharge by promise failing to offer facilities
5. Discharge by death
6. Discharge by refusing tender of performance
7. Discharge by unauthorized material alteration of contract
8. Discharge by lapse of time
9. Discharge by operation of law
10. Discharge by breach of contract
Discharge by Performance
A contract is said to be discharged if the parties to a contract fulfill their obligations arising
under the contract within the time and in the manner prescribed. In such a case, the parties are
discharged and the contract comes to an end.
Performance of a contract is the most usual mode of its discharge. It may be Actual Performance
or attempted Performance.
(a) Actual performance: When both the parties perform their promises, the contract is
discharged. Performance should be complete, precise and according to the terms of the
agreement. Most of the contracts are discharged by the performance in this manner.
(b) Attempted Performance: Tender or offer of performance means "offer made by the
promisor to promisee expressing his willingness to perform his part of the obligation under the
contract. It is also known as attempted performance.
Example: 'A' offers to sell his house to 'B' for $100000 and 'B' accepts the same letter 'B' paid
the amount in full and 'A' handed over the house to 'B'. Here the parties have fulfilled their
obligations. The contract is said to be discharged by performance.
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Discharge of Contract by Agreement or consent
If both the parties to the contract, expressly or impliedly, agree to terminate the contract, the
contract is said to have been discharged by mutual consent.
Example: A buys a scooter from B with the condition that if it’s working is not found
satisfactory, he will return it within 10 days. A is not satisfied with the performance of the
scooter and returns it to B within 10 days. The contract is discharged by mutual consent.
Mutual discharge of a contract may take place in any of the following ways:
 Novation
 Alteration
 Remission
 Rescission
 Waiver
 Merger
Discharge by the Impossibility of Performance

The contract becomes void, if the performance of the contract becomes subsequently impossible.
• Impossibility must be physical or legal impossibility.
Example: A promise to sell B his horse on certain date. The horse dies before that date. The
promise is impossible to be performed.
Discharge of a Contract by Lapse of Time

If the promisor fails to perform and the promisee fails to take action within this specified period,
then the latter cannot seek remedy through law. It discharges the contract due to the lapse of
time.
Example: Peter takes a loan from John and agrees to pay instalments every month for the next
five years. However, he does not pay even a single instalment. John calls him a few times but
then gets busy and takes no action. Three years later, he approaches the court to help him recover
his money. However, the court rejects his suit since he has crossed the time-limit of three years
to recover his debts.
Discharge of a Contract by Operation of Law

A contract can be discharged by operation of law which includes insolvency or death of the
promisor.
Discharge by Breach of Contract

If a party to a contract fails to perform his obligation according to the time and place specified,
then he is said to have committed a breach of contract.
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Also, if a party repudiates a contract before the agreed time of performance of a contract, then he
is said to have committed an anticipatory breach of contract.
In both cases, the breach discharges the contract. In the case of:
an actual breach, the promisee retains his right of action for damages.
an anticipatory breach of contract, the promisee cannot file a suit for damages. It also
discharges the promisor from performing his part of the contract.
Discharge by Non-Provisioning of Facilities

In many contracts, the promisee agrees to offer reasonable facilities to the promisor for the
performance of the contract. If the promisee fails to do so, then the promisor is discharged of all
liabilities arising due to non-performance of the contract.
Example: Peter agrees to fix John’s garage floor provided he keeps his car out for at least 6
hours. Peter approaches him a few times but John is reluctant to get his car out. John fails to
provide reasonable facilities to Peter (an empty floor). This discharges him of all obligations
arising under the contract.
Discharge by unauthorized material alteration of contract
Material alteration means any alteration or change in the contract that affects the rights and
liabilities of the parties to the contract significantly. Material alteration puts an end to the
contract.
If one party without the consent of the other party makes such an alteration in the contract, the
other party can avoid the contract. In such cases, the effect of alteration would be the same as
that of cancellation of the document. However, an alteration which is not material or which is
made to carry out the common intention of the parties, does not affect the validity of the contract.
Discharge by death
Where a contract is personal in character, or where personal skill or ability is involved, death of
the promisor discharges the contract.
Example: A promise to paint a picture for B on a certain date. A dies before that date. The
contract is discharged.
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Remedies for Breach of Contract
A contract is a legally binding agreement that is enforced by the full weight of the court. In the
event that either party to a contractual agreement fails to perform according to the terms of the
contract, the other party may take legal action. The party who fails to perform is referred to as
the breaching party. A civil lawsuit for breach of contract may be filed to obtain a remedy for
the breach.
There are following remedies to injured party in case of breach of contract:
Monetary damages
The party who breached the contract can be held responsible for the losses caused by the breach.
Both general or expectation damages and consequential damages can result from a breach of a
contract. General or expectation damages refer to the loss directly caused by the breach.
Consequential damages refer to losses that occurred because of the breach but that were an
indirect cause. For example, if you contracted and paid for a machine to be delivered and it
never came, the general losses would include the value of the money you paid for the machine.
The consequential losses could include the loss of business caused by the fact you did not have
the machine you needed to do your work.
Liquidation damages.
Sometimes, it is very difficult to determine how much a person was damaged by a breach of
contract. To address this problem, some contracts contain liquidated damage clauses. Essentially,
these clauses specify that the non-breaching party will be awarded a specific amount of money in
the event a breach occurs. These clauses will be upheld as long as they are fair.
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What are Goods?
The subject matter in sales of goods is (goods).
Goods may be classified into

1. Existing goods
2. Future goods
3. Contingent goods
Existing goods:
At the time of sales if the goods are physically in existence and are in possession of the seller the
goods are called ‘Existing Goods’. Existing goods can be classified into ‘specific or
unascertained.’
(a) Specific goods. Goods identified and agreed upon at the time of the making of the contract
of sale are called ‘specific goods’ [Sec. 2(14)]. It may be noted that in actual practice the term
‘ascertained goods’ is used in the same sense as ‘specific goods,’ For example, where A agrees
to sell to B a particular radio bearing a distinctive number, there is a contract of sale of specific
or ascertained goods.
(b)Unascertained goods. The goods, which are not separately identified or ascertained at the
time of the making of the contract, are known as ‘unascertained goods.’ They are indicated or
defined only by description. For example, if A agrees to sell to B one bag of sugar out of the lot
of one hundred bags lying in his go down; it is a sale of unascertained goods because it is not
known which bag is to be delivered. As soon as a particular bag is separated from the lot for
delivery, it becomes ascertained or specific goods.
The distinction between ‘specific’ or ‘ascertained’ and ‘unascertained’ goods is important in

connection with the rules regarding ‘transfer of property’ from the seller to the buyer.
Future goods:
Future goods are goods to be manufactured or produced or yet to be acquired by seller. There
cannot be present sale in respect future goods because the property cannot pass.
Example
(a) A agrees to sell to B all the milk that his cow may yield during the coming year. This is a
contract for the sale of future goods.
(b) X agrees to sell to Y all the mangoes, which will be produced in his garden next year. It is
contract of sale of future goods, amounting to ‘an agreement to sell.’
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Contingent Goods:
Though a type of future goods, these are the goods the acquisition of which by the seller depends
upon a contingency, which may or may not happen.
Example
A agrees to sell specific goods in a particular ship to B to be delivered on the arrival of the ship.
If the ship arrives but with no such goods on board, the seller is not liable, for the contract is to
deliver the goods should they arrive.
Difference Between Sale and Agreement to sell

A ‘Contract of Sale is a type of contract whereby one party (seller) either transfers the ownership
of goods or agrees to transfer it for money to the other party (buyer). A contract of sale can be a
sale or an agreement to sell. In a contract of sale, when there is an actual sale of goods, it is
known as Sale whereas if there is an intention to sell the goods at a certain time in future or some
conditions are satisfied, it is called an Agreement to sell.
Basis for Sale Agreement to sell

Comparison
Meaning When in a contract of sale, the When in a contract of sale the
exchange of goods for money parties to contract agree to
consideration takes place exchange the goods for a price at a
immediately, it is known as Sale. future specified date is known as
an Agreement to Sell.
Definition Sale can be defined as “transfer of in case where the seller agrees
ownership in the goods by the with the buyer to transfer the title
seller to buyer in exchange of of ownership on a future date upon
price paid or promised or partly satisfying certain condition is
paid and partly promised. called as ‘Agreement to Sale’.
Example ‘X’ sold 10 bags of Wheat to ‘Y’ ‘X’ agrees to sell 10 bags of wheat
against payment of Rs. 3,000. to ‘Y’ for Rs.3,000 after getting
the stock.
Nature Absolute Conditional
Type of Contract Executed Contract Executory Contract
Transfer of risk Yes No
Title In sale, the title of goods transfers In an agreement to sell, the title of
to the buyer with the transfer of goods remains with the seller as
goods. there is no transfer of goods.
Right to sell Buyer Seller
Page 7 of 8
Consequences of Responsibility of buyer Responsibility of seller
subsequent loss or
damage to the
goods
Tax Tax is charged at the time of sale. No tax is levied
Suit for breach of The buyer can claim damages Here the buyer has the right to
contract by the from the seller and proprietary claim damages only.
seller remedy from the party to whom
the goods are sold.
Existence of goods This contract takes place over the The goods may exist or may the
existing specific goods. contract have been made over
contingent goods.
Burden to bear In sale contract, if the goods are The seller will bear the loss in case
loss destroyed, then the buyer who has if the goods are deteriorated.
paid the price will bear the loss.
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National University of Modern Languages

Subject: Business Law

They are as per the following: -

Discharge by the Impossibility of Performance

Discharge of a Contract by Lapse of Time

Discharge of a Contract by Operation of Law

Discharge by Breach of Contract

Discharge by Non-Provisioning of Facilities

There are following remedies to injured party in case of breach of contract:

Goods may be classified into

The distinction between ‘specific’ or ‘ascertained’ and ‘unascertained’ goods is important in

Difference Between Sale and Agreement to sell

Basis for Sale Agreement to sell

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