Discharge of contracts as per laws of Tanzania

DISCHARGE OF CONTRACTS

[Sections 73–75] of The Law of Contract Act [CAP. 345 R.E. 2019]

Contracts can come to an end through various means, which may be categorized as follows:

A. By performance or tender

B. By mutual agreement

C. By subsequent impossibility

D. By operation of law

E. By breach

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A. Discharge by Performance

The most straightforward way a contract is discharged is through performance. This happens when both parties fulfill their respective obligations under the contract, effectively bringing it to an end. For instance, if A agrees to sell a car to B for Tsh. 8,500,000 and delivers the car while B pays the agreed amount, the contract concludes through performance.

Tender of Performance

An offer to perform—known as a tender—has the same legal effect as actual performance. If one party offers to fulfill their obligation and the other refuses to accept it, the party making the offer is released from further liability.

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B. Discharge by Mutual Consent (Section 62)

A contract can also be discharged if the involved parties mutually agree to replace it with a new agreement, cancel it, or alter its terms. This discharge may occur through the following.

1. Novation

This refers to the substitution of a new contract in place of the original. This may involve the same or different parties.

Examples:

i. A owes B Tzs. 20,000 but instead mortgages property worth Tzs. 15,000 to B. This new agreement cancels the original.

ii. A owes B money, but A, B, and C agree that C will take over A's debt. The original debt is extinguished and replaced by a new one.

Note: The substituted agreement must be legally enforceable. If it is void (e.g., unstamped), the original contract remains valid.

2. Rescission

This is the mutual cancellation of all or part of a contract, relieving both parties from their obligations.

3. Alteration

If the contract terms are mutually changed, the original contract is considered discharged, although the parties remain the same.

4. Remission (Section 63)

This occurs when one party accepts a lesser performance or payment than originally agreed.

Examples:

i. A pays B Rs. 2,000 in full settlement of a Rs. 5,000 debt, and B accepts it—the debt is discharged.

ii. C pays B Rs. 1,000 on A’s behalf, and B accepts it in full satisfaction of a Rs. 5,000 debt from A—the debt is considered discharged.

Under Tanzanian law, a promise to accept less is valid even without fresh consideration.

Accord and Satisfaction (English Law)

In England, to discharge a contract via remission, there must be a fresh consideration. "Accord" is the agreement to accept less, and "satisfaction" is the actual fulfillment. Accord without satisfaction is unenforceable, but once satisfaction occurs, the original obligation is discharged.

5. Waiver

Waiver involves voluntarily giving up one’s rights under a contract. When this occurs, the other party is no longer obligated.

Example: If A is contracted to paint a picture for B, and B later tells A not to, A is no longer required to fulfill the promise.

6. Merger

This happens when a person’s inferior contractual right merges into a superior right.

Example: A tenant who buys the leased property gains ownership rights, and the leasehold rights disappear.

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C. Discharge by Subsequent Impossibility (Section 56)

Contracts may become void if their performance becomes impossible due to unforeseen circumstances. Impossibility may be inherent from the beginning or arise later.

Inherent Impossibility

Examples:

 i. A promises B Tzs. 50,000 if B rides a horse to the moon. Void from the start.
ii. A agrees to find treasure using magic. Also void ab initio.

Supervening Impossibility (Doctrine of Frustration in English Law)

When a contract was initially possible but becomes impossible later, it may be voided due to changed circumstances. These include:

1. Destruction of the Subject Matter

If the contract’s subject is destroyed without fault, the contract ends.

Example: A music hall burns down before an event; the owner is not liable [Taylor v. Caldwell (1863)].

2. Death or Disability of a Party

If the contract requires personal performance, the promisor’s death or incapacitation makes the contract void.

Examples:

i. A and B agree to marry; A dies before the date—contract void.

ii. A singer is injured before a scheduled performance—contract void.

3. Subsequent Illegality

If a contract becomes illegal after it’s made, performance is excused.

Example: A contract to supply wine becomes void when liquor trade is banned.

4. Outbreak of War

War between two countries can render contracts between parties from those countries void.

Example: A agrees to ship goods to a country which later becomes an enemy; the contract ends.

5. Non-occurrence of Essential Conditions

If essential circumstances for performance don’t occur, the contract may be void.

Examples:

i. A goes insane before marrying B—contract void.

ii. A flat is rented to view a coronation that is later cancelled—rent is not payable [Krell v. Henry (1903)].

Exceptions

Not every difficulty amounts to impossibility. Contracts are not discharged if:

1. Performance is merely difficult or costly

Example: War increases freight rates, but this doesn’t excuse delivery.

2. Performance is commercially unprofitable

Economic loss doesn’t excuse non-performance.

Example: A contract to lay gas mains isn’t void just because war makes materials expensive [M/s. Alopi Pd. v. Union of India (1960)].

However, in Easun Engineering Co. Ltd. v. Fertilisers and Chemicals Travancore Ltd. (AIR 1991 Mad. 158), a 400% price rise was ruled a valid ground for discharge due to frustration of the contract’s foundation.

3. Failure of a third party

If the promisor’s ability to perform depends on someone else who fails, the contract is still binding.

4. Strikes and civil unrest

These don’t discharge a contract unless there’s an express term saying so.Example: Goods not delivered due to Algerian riots—no excuse [Jacobs v. Credit Lyonnais (1884)].