Performace and Discharge of Contract

1) Meaning and statutory scheme #

Performance of contract means carrying out the promises undertaken by the parties. As a general rule, each party must perform or offer to perform their promise, unless performance is dispensed with or excused under the Act. (Chapter IV: Sections 37–67, ICA).

PART A — PERFORMANCE OF CONTRACT (Sections 37–67) #

2) Obligation to perform (Section 37) #

Parties must perform their respective promises, or offer to perform them, unless such performance is waived or excused under the Act.

3) Tender / Offer of performance (Section 38) #

If the promisor makes a valid offer of performance and the promisee refuses, the promisor is not responsible for non-performance, and generally does not lose rights under the contract (subject to conditions of a valid tender).

Landmark case: Startup v. Macdonald (Court of Common Pleas, 1843) #

Facts: A contract required the seller to deliver linseed oil “within the last 14 days of March.” On 31 March, the seller arrived and offered delivery late at night (near the end of the day). The buyer refused, arguing it was too late/too late in the day to accept delivery.

Issue: Does a tender made late at night on the final permissible day still count as a valid tender within time?

Held / Principle: Yes. The seller was entitled to tender at any time before midnight on the last day permitted by the contract. A tender made within the contractual time-limit is valid; if the other party wrongfully refuses, that party is in breach (and the tendering party is not at fault).

4) Refusal to perform wholly (Section 39) #

If a party refuses to perform or disables himself from performing the promise wholly, the other party may put an end to the contract, unless they signify acceptance of continuation.

5) Who must perform? (Sections 40–45) #

Section 40: If the contract shows intention of personal performance, promisor must perform personally; otherwise, competent agent or representative may perform.

Section 41: If promisee accepts performance from a third person, they cannot later enforce it against the original promisor. (See: Hirachand Punamchand v. Temple)

Sections 42–45: Rules on joint promisors and devolution of joint rights and liabilities.

6) Time and place of performance (Sections 46–50) #

If no time is specified, performance must be within a reasonable time (Section 46).

If place, time and manner are specified or require the promisee’s application, the Act provides default rules (Sections 47–50).

Case: Hind Construction Contractors v. State of Maharashtra (1979, SC) #

Facts: Hind Construction had a Government works contract with a fixed completion period (about 12 months) and the usual departmental clauses—on paper “time to be strictly observed,” plus provisions that allowed extension of time and also compensation/penalty for delay. There were delays; instead of first fixing a fresh deadline and making time essential, the State rescinded the contract and forfeited the security deposit.

Issue: Was time of the essence so that the State could straightaway rescind and forfeit the security, or had time ceased to be essential (or become waivable) in this kind of construction contract unless properly re-fixed?

Held: The Supreme Court held that, in such construction contracts, time is not automatically of the essence merely because there is a “time is essential” clause—especially when the contract also provides for extensions and delay compensation, which usually show that strict adherence to the original date was not intended to be fundamental. If the employer wants to terminate for delay, it must first give reasonable notice fixing a further time and make time the essence; rescinding without doing that was held wrongful, so forfeiture could not stand

See also Significance to “Time & Conduct of Parties” and “Time as Essence of Contract” within Specific Relief.

7) Reciprocal promises (Sections 51–54) #

These sections govern mutual and dependent promises: who must perform first, effect when one party prevents performance and consequences of failure in reciprocal promises.

8) Appropriation of payments (Sections 59–61) #

If a debtor owes multiple debts, and makes a payment, these sections decide which debt the payment is adjusted towards (as per debtor’s indication, creditor’s choice, or legal default).

9) When performance is excused and when it needs not be performed (Sections 62–67) #

Key statutory routes where original performance obligation is discharged:

• Section 62: Novation, rescission and alteration by agreement.
• Section 63: Promisee may remit, waive, extend time or accept lesser satisfaction.
• Section 64: Consequences of rescinding a voidable contract.
• Section 67: If promisee neglects or refuses to provide facilities for performance, promisor is excused to that extent.

PART B — DISCHARGE OF CONTRACT #

10) Meaning #

Discharge means termination of contractual obligations—i.e., parties are freed from further performance. Discharge may occur by performance, agreement, impossibility, breach, or operation of law.

11) Discharge by performance (Actual performance / attempted performance) #

• When both parties perform, the contract ends.
• A valid tender (attempted performance) may also protect the promisor (Section 38).

12) Discharge by mutual agreement (Section 62) #

Includes:

• Novation (substituting a new contract)
• Rescission (cancelling)
• Alteration (changing terms)

Union of India v. Kishorilal Gupta & Bros. (SC, 1959) #

Facts: The Union of India and Kishorilal Gupta & Bros. had three supply contracts for military stores, each containing an arbitration clause. Disputes arose before completion. The parties then executed fresh “settlement” agreements to resolve the disputes by fixing amounts payable in settlement (one settlement even contemplated payment by instalments and creation of security). Later, when disputes revived and the Government tried to invoke arbitration under the original contracts, the contractor argued that the original contracts (and their arbitration clauses) had been superseded by the settlements.

Issue: After a settlement/substituted agreement, does the arbitration clause in the original contract survive, or does it end along with the original contract under Section 62 (novation, substitution and rescission)?

Held: The Court held that where the settlement, on its true construction, shows a common intention to substitute it for the earlier contract, it obliterates the earlier contract and parties must look only to the settlement for enforcing rights. In that situation, the arbitration clause (being part of the original contract) also perishes with the original contract and cannot be invoked unless the settlement preserves or carry forwards the arbitration clause in old contract.

13) Discharge by waiver, remission and accord (Section 63) #

Promisee may:

• dispense with performance (wholly or partly),
• extend time,
• accept any satisfaction in place of performance.

Landmark case: Jagad Bandhu Chatterjee v. Nilima Rani (SC) #

Facts: The plaintiff claimed a right of pre-emption (preferential right to purchase) against Nilima Rani’s purchase of a property. The defendant proved that the plaintiff had actively facilitated the very sale (plantiff was broker in Nilima’s purchase and even earned a commission), showing acquiescence in the transaction. After the sale was completed, the plaintiff tried to enforce pre-emption.

Issue: Does waiver of a right require a separate contract and consideration, or can it be inferred from conduct under Indian law?

Held: The Supreme Court held that waiver is essentially an intentional relinquishment of a known right, and it can be inferred from clear conduct such as assisting the sale and taking brokerage. Under Section 63 of the Contract Act, a promisee can waive performance without consideration; therefore, waiver is not dependent on a fresh contract supported by consideration. The plaintiff, having acquiesced had clearly shown wavier of pre-emption rights and now could not claim it.

14) Discharge by supervening impossibility / frustration (Section 56) #

If an act becomes impossible or unlawful after the contract, the contract becomes void (subject to the section’s structure).

Landmark case: Satyabrata Ghose v. Mugneeram Bangur & Co. (1954, SC) #

Facts: Mugneeram Bangur & Co. had a residential development scheme over a large tract of land near Calcutta. They agreed to sell a plot (later nominated to Satyabrata Ghose) and undertook to lay roads and drains and then complete the conveyance after development. During World War II, the Government requisitioned substantial parts of the scheme land for military purposes under wartime powers. The company then tried to treat the agreement as cancelled and offered refund options; the purchaser insisted on performance and sued.

Issue: Did the Government requisition/war restrictions frustrate the contract under Section 56 (supervening impossibility), so that the contract became void?

Held: No frustration on these facts. The Court held that “impossibility” in Section 56 is not limited to physical impossibility—it covers situations where performance becomes impracticable or the obligation is fundamentally altered. But a temporary requisition causing delay did not destroy the foundation of this contract; the parties had contracted in wartime conditions and no fixed completion time was agreed. So the contract was not discharged merely because performance became slower or inconvenient.

Landmark case: M/s Alopi Parshad & Sons v. Union of India (1960, SC). #

Facts: Alopi Parshad were Government agents for essential supplies (wartime context). During World War conditions, there was a general rise in prices and costs, and the suppliers said performance had become commercially very burdensome, so they claimed higher payment than the contract rates (the contract had even been modified by mutual consent during the war, showing the parties were aware of wartime conditions).

Issue: Does a contract become void under Section 56 merely because, due to later events, performance has become more expensive and onerous than originally expected?

Held: No. The Supreme Court held that a contract is not frustrated merely because circumstances change and performance becomes commercially difficult or costly. Courts have no general power to rewrite the bargain or relieve a party just because performance has become financially onerous; Section 56 applies only when performance becomes impossible or unlawful, not merely harder or more expensive.

Energy Watchdog v. CERC (SC, 2017) — Section 56 vs Force Majeure clause #

Facts: Electricity generators had long-term Power Purchase Agreements (PPAs). After bids were won, an external event (notably regulatory changes affecting imported coal prices/supply) made performance costlier, so the generators sought relief by arguing force majeure / frustration and asked for higher tariff/compensation.

Issue: When the contract (PPA) already has a force majeure clause, should the court decide the dispute under that contractual clause (as a contingent-event clause), or apply Section 56 frustration?

Held / Principle: The Supreme Court clarified the framework:

• If the contract contains a force majeure clause, the case is ordinarily analysed within the four corners of that clause—as a matter of Section 32 (contingent contracts).
• Section 56 applies only when the supervening event is de hors the contract (i.e., not dealt with by the force majeure/contingency scheme the parties agreed).
• Also, mere commercial hardship / higher cost is not “impossibility” under Section 56.

NOTE: For Case where Frustration was held (not just discussed) refer the case of: Sushila Devi v. Hari Singh

15) Discharge by breach (actual or anticipatory) #

• Actual breach: when a party fails/refuses to perform at the time performance is due (linked to Section 39).
• Anticipatory breach: refusal before due date (commonly studied with cases like Hochster v De la Tour in general contract law).

16) Discharge by operation of law #

Without needing detailed case law, you can write standard heads:

• Death (in contracts of personal skill),
• Insolvency,
• Merger of rights,
• Limitation (remedy barred),
• Material alteration by law, etc.

Conclusion #

Performance (S. 37–67) lays down how promises must be carried out—including tender, time and place, and reciprocal promises. Discharge ends obligations—most importantly by performance, agreement (S.62), waiver or remission (S.63), impossibility or frustration (S.56), and breach (S.39). Together, these provisions ensure contracts are enforced when possible, but fairly terminated when law recognises a valid ground to end performance.