Performance, Discharge and Breach of Contract

What is Performance of Contract?

The performance of the contract implies completion of the contract as per the terms and conditions created by the promisor and the promisee. When both parties perform the contract properly, the contract comes to an end. Performance is demanded by the promisee from the promisor

Joint Performance of Contract

Joint performance of the contract is the contract in which more than one person or party has taken the obligation for the performance of the contract. According to Section 42 of the Indian Contract Act, “when two or more persons have made a joint promise, then all such persons during their lives and after their lives their representatives are jointly liable to perform the promise.”

For example, when ‘A’ ‘B’ ‘C’ jointly made a promise to ‘Z’ to pay a sum of money than they are jointly liable to pay the amount to Z. If one of the joint promisors has died, his legal heirs are equally responsible for the promise made by the deceased promisor.

Rules Regarding Time, Place, and Manner of Performance of Contract

Performance according to the time

  • When there is no time specified in the contract in which the work can be performed, the promise must be done within a reasonable time. The reasonable time would be dependent on the circumstances of the promise. (Section 46)

  • When a promise is to be performed on a specific date but the time for the completion is not mentioned, the promise must be completed on that date but only during business hours. The promisee after business hours may refuse to accept the delivery. (Section 47)

Performance According to the Place

  • When a promise is to be performed on a certain day, the promisee has to apply to the promisor to apply for the performance of the contract at a proper place and within usual business hours. (Section 48)

  • When a promise is to be performed without application by the promisee and no place is fixed for performance, it is the duty of the promisor to apply to the promisee to appoint a reasonable place for such performance of the promise (Section 49)

It is the duty of the promisor to ask about the place at which the money has to be paid or the place at which the delivery of the goods has to be made. If no place is defined in the agreement then it is the duty of the promisor to do so. But, generally, the promise is executed at the usual place of business.

But, if the promisor has not asked for the place of performance of the promise, then the promisee must accept it at the normal place of busi-ess and at normal business hours.

Appropriation of Payments (Clayton’s Rule of Appropriation)

When a debtor owes distinct debts to a creditor and make a partial payment, the question of appropriation of payments arises. In this case, the Latin maxim of quic quid sovitur, sovit sectionundum modum solventis applies. This means that whatever has to be paid must be paid according to the intention of the payer.

In furtherance thereof, the Contract Act has prescribed for certain rules of appropriation, which are known as Clayton’s Rule of Appropriation.

If the performance consists of payment of money and there are several debts to be paid, the following three rules shall apply:

  • Application of payment where debt to be discharged is indicated by the debtor, then the creditor shall upon the receipt of repayment in such case be only appropriated in the manner so indicated by the debtor;

  • Where the debtor has not indicated the manner in which the debt is to be discharged then the creditor shall apply the debt at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is time-barred or not;

  • When neither the debtor nor the creditor makes any appropriation, the payment shall be applied in discharge of the debts in order of time (chronologically), whether they are or are not barred by the law of limitation. If the debts are of equal standing, the payment shall be applied in discharge of each proportionately.

What is Discharge of Contract?

Discharge of a contract means the discontinuation of the contractual relations between the parties. When the rights and obligations arising out of a contract are extinguished, the contract is said to be discharged or terminated.

Modes of Discharge of Contract

A contract can be discharged in various ways described as follows:

Discharge by Performance

This type of discharge is made when the parties to the contract have fulfilled their obligations in the contract. In this type, actual performance and attempted performance have been done by the respective party. In attempted performance, the promisor offers to fulfill his part but the promisee rejects the offer to perform.

Discharge by Mutual Agreement

When the discharge is made by recession, novation, alteration, and remission, it is called discharge by mutual agreement.

Discharge by Impossibility of Performance

A condition of impossibility may arise during the performance of the contract. In this case, the contract is discharged by both parties.

The cases where this can be done are:

  • Change in
  • Destruction of the subject matter
  • Personal incapacity of the promisor

War is declared between two countries in which the parties exist.

Discharge by Lapse of Time

Sometimes the promise is not completed within the appropriate time frame as written in the agreement. In such case, it is on the promisee either to reject the legal obligation or to accept it. In case it is rejected, it is called a discharge by lapse of time.

Discharge by Operation of Law

When the promisor gets insolvent, insane, or dies then the contract is said to be discharged by law.

Discharge by Breach of Contract

When part of one party a default has been done then it is said to be a breach of contract. In this case, it is said that the contract is discharged by breach of contract. The breach of contract may be an anticipated breach or an actual breach.

Discharge by Agreement

When the discharge is made by the recession, novation, alteration, and remission, then it is called discharge by mutual agreement.

Novation and Assignment

Novation means substitution. When an old contract is replaced by another contract then it is said to be a novation. In such case, the old contract will cease to exist and a new contract is binding between the parties.

Assignment means any specific work under the contract has been granted to a person to be performed under a contract.

Remission of Performance

Remission of the contract means dispensing with the Contract. Section 63 of the Contract Act deals with remission. It is made by the promisee. It means that the promisee can waive or dispense of the legal obligation of the promisor as per his convenience wholly or partially. It may also extend the time limit for the performance of the contract.


Dispensing or remitting the performance may take the form of a Waiver. Waiver amounts to the release or surrender of contractual rights. The waiver is as much as similar to the Remission. It also includes winding up the performance liability of the promisor at the convenience of the promises.

Discharge by Frustration

When the object of a contract can no longer be performed due to a change in circumstances that makes performance impossible such as:

  • Change in law
  • Destruction of the subject matter
  • Personal incapacity of the promisor
  • War is declared between the two countries in which the parties exist

Therefore, the contract is said to be frustrated and the parties to the contract are discharged. The term frustration is used in English Law for the impossibility of performance.

What is Breach of Contract?

Breach of contract means refusal of performance under a contract by a party to the contract. When one party refuses to perform, the other party is discharged from its obligations under the contract. The breach may be anticipatory or actual.

In case of a breach, the aggrieved party (i.e., the party not at fault) is relieved from performing his obligation and gets a right to proceed against the party at fault. A breach of contract may either be anticipatory or actual.

Anticipatory Breach

When the promisor refuses or rejects to perform his legal obligations of the contract before the specified time of the performance, then it is called an anticipatory breach. It can be inferred from an act of the party that can render the performance under the contract impossible.

Actual Breach

When one party to the contract refuses to perform his duty or promise specified in the contract on the due date of the contract, then it is known as an actual breach. In the case of an actual breach, the party with whom the breach has been done can obtain a right of action against the party who has done the breach of contract.

Damages and Specific Relief

In case, when the breach of contract has been done, the promisee that has been breached is eligible to claim the compensation.

The compensation can be primarily of two types:

  • Compensation for the damages that arise due to the normal breach of the contract.

  • Specific damages are already decided while entering the agreement between the parties. These are predefined damages that are payable by the promisor. However, these damages can only be claimed by providing prior notice

Contract law has prescribed certain rules governing the measure of damages:

  • The party in breach must make compensations in respect of the direct consequences flowing from the breach

  • The aggrieved party is not entitled to any compensation for remote or indirect loss or damage sustained by the reason of the breach.

  • The means that existed for mitigating the loss shall be taken into account while assessing the damage

Types of Damages and Claims

When assessing damage, the rule used can be found in the Latin maxim “Non-Remote Causa Sed Proxima Spectatur” which means that in case of damages, only the proximate cause shall be taken into consideration and not the remote cause.

The different types of damages with claims are as follows:

Liability for Special Damages

When it was predecided by the parties that at the time of breach of contract special damages along with the normal damages has to be paid by the party at default then the special damages are payable.

Liability for Exemplary Damages

Exemplary damages are awarded to punish the wrong party with the intention to set an example. These types of damages are generally awarded in cases like the breach of promise to marry or when the cheque is dishonoured by the issuing party.

Liability to Pay Nominal Damages

These types of damages are payable when no damage has been caused due to the breach of contract.

Damage for Deterioration Caused by Delay

It arises when there is also a loss of opportunity. In this case, compensation can be claimed without giving prior notice. It is caused to the goods that are delivered late through the carrier. In this case, loss of reputation can also be considered.

  • Clarkson, K., Miller, R., Jentz, G., & Cross, F. (2014). Business Law: Text and Cases (11th ed.).

  • Keenan, D., & Riches, S. (2007). Business law. Harlow: Pearson Longman.

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