Discharge of Contract

Discharge of Contract- Meaning

The term discharge of contract means ending of the contractual relationship between the parties. A contract is said to have been discharged when it ceases to operate i.e. when the rights and obligations created by the parties came to an end. A contract can be discharged if the parties mutually agree to terminate the contract. Also there are different methods through which contracts can be discharged. In this article, we will discuss the different methods of disc


Discharge of Contract Method

A contract is said to be discharged using the following methods:


  • Discharge by Performance

  • Discharge by Agreement or Consent

  • Discharge by Impossibility of Performance

  • Discharge by Lapse of Time

  • Discharge by Operation of Law

  • Discharge by Breach of Contract


Let us understand the discharge of contract methods in brief


Discharge by Performance

Performing means doing all those things which are required by a contract. Discharge of performance occurs when the parties to the contract fulfill their obligations set out under the contract within the specified time and in the manner prescribed. In such a case, parties are discharged and contracts come to an end. But if only one of the party performs, he alone is discharged. Such a party gets the right of action against the other party who is guilty. Discharge of Performance may be:


  • Actual Performance

  • Attempted Performance


Actual Performance

When both the parties perform their performance, then the contract is said to be discharged. Performance should be complete and precise according to the terms of the agreement. Majority of the contracts are discharged by performance in this manner.


Attempted Performance

Attempted performance is only an offer to perform the obligation under the contract. When the promisor agrees to perform the contract but the promisee refuses to accept the performance, then in such case, it is termed as discharge of contract by attempted performance or tender. 


Discharge by Agreement or Consent

Novation

The term novation means the substitution of the new contract by the original one. The new agreement may be with the same parties or with the new parties. For a contract to be valid and effective, the consent of all the parties including the new one if any is necessary. Moreover, the second party must be capable of enforcement of law, the consideration for which is the exchange of promise not to carry out the original contract.


Alteration

This refers to change in one or more terms of a contract with the consent of all the parties entered in the contract. Alteration leads to formation of new contracts but the parties to it remain the same.


Remission

This means the acceptance by the promisee of a lesser sum than what was mentioned in the contract, or a lesser fulfillment of the promise made. According to the section 63, every promise may:


  1. May remit or give up with it

  2. Extend the performance time

  3. Accept any other satisfaction rather than performance


Recession

The term recession refers to cancellation of all or some of the material terms of the contract. If the parties entered into the contract, mutually agreed to do so, then in such case the respective contractual agreement of the parties gets terminated.


Waiver

The term waiver means abandonment of rights. When one party deliberately abandons his right under the contract, the other party is released of his obligations, else binding upon it.


Discharge by Impossibility of Performance

If it is impossible for any of the parties entered in the contract to perform their obligations, then the impossibility of performance of contract leads to discharge of contract. If the impossibility of performing the contract exists from the start, then it is termed as impossibility by ab-initio. However, impossibility of performing the contract may also arise later due to:


  • An unforeseen change in the law

  • Destruction of subject-matter of the contract

  • Non-existence or Non-occurrence of a particular state of things.

  • Outbreak of War


Example:

John enters into the contract with this friend Tom to marry his sister within 6 months. Howbere, John met with an accident and became insane. This impossibility of performance leads to discharge of contract.


Discharge of Contract by a Lapse of a Time

According to The Limitation Act, 1963, there is a specific time period for the performance of a contract. If the promisor failed to perform his duties and the promisee failed to take action within this specified period, then the promisee in such a case cannot be deprived of his remedy through law. Here, the contract is said to be discharged  due to the lapse of time. For example: John takes a loan from one of his friends and agrees to pay him installments every month for the next five years. However, he does not pay even a single installment. His friend calls him several times but then gets busy and takes no action. After three years, he approaches the court to help him recover his money. However, the court rejects his complaint because he has crossed the time-limit of three years to recover his debts.


Discharge of Contract By Operation of Law

A contract can be discharged by the operation of law in the following circumstance:


  • Unauthorized Material Alteration of Written Document: A party can discharge the contract i.e from his side if the other party changes the terms such as price or quantity of contract without taking any permission from the former. 

  • By Insolvency

  • By Death


Discharge by Breach of Contract

A contract is obliged to perform according to its terms. But when a promisor fails to perform a contract according to the terms of the contract, then he is said to have committed a breach of contract. The breach of contract is of two types


  • Actual Breach

  • Anticipated Breach


Actual Breach: Actual breach of contract refers to failure to perform the obligation when the performance is due. For example, if a seller fails to deliver the goods by the appointed time, or the goods are delivered but not upto the mark in terms of quality or quantity specified in the contract.


Anticipatory Breach: Anticipatory Breach, also known as Breach by Contradiction, takes place when one party before the arrival of the fixed date for performance states that it cannot or will not able to perform material part of the contractual obligation on the specified date or it aims to perform the contract in a way that is inconsistent with the deeds specified in the contract at the initiation.


Conclusion

In short, discharge of contract refers to a situation when there is a need to terminate the contractual obligations.

FAQs on Discharge of Contract

1. When can a contract be discharged or terminated?

According to the Indian Contract act 1872, A contract can be discharged or terminated by the parties involved by giving lawful reasons like frustration, recession, ending the contract by giving prior notice, or on completion. Such termination may take place by the mutual consent of the parties or law. 

2. How is a contract discharged by frustration?

Sometimes after the contract has been made by both the parties, something occurs beyond the control of the parties and that makes the performance of the contract either impossible or considerably different from what parties agree upon. This is known as discharge of contract by frustration. 

3. How are contracts discharged by subsequent agreements?

After the construct has been made by the parties, they may agree to discharge the contract or change their contractual obligation by negotiating another agreement. The parties can discharge their original contract in following ways:


  • Mutual discharge: When both the parties involved in the contract agree not to proceed with their obligations.

  • Release: When one party involved in the contract releases from future obligations.

  • Waiver: When an agreement is changed to the benefit of only one party.

  • Novation: When a contract by one is replaced by another someone else.

  • Merger: When a lesser agreement such as a simple contract is overcome by a later and greater agreement such as a deed having similar terms.

4. What is the type of Breach of contracts?

Anticipatory breach the phenomenon of anticipatory breach involves the violating obligation done at a time of contact from one person to another. If a person agreed to deliver certain tangible goods to another person at a specific time of period then he refused to perform his duty and supplied to another part without considering the contract. This is called anticipatory.


Actual Breach:- actual breach of contract is a case that refers to the failure of the seller to perform his contractual obligations at the specified time. If the seller was unable to deliver goods at the given time then it is called the actual breach of contract.

5. Explain the Discharge of Contract by the Operation of Law?

If a contract is to be issued by operation of law, it means a change in daily activities leads to the breach of contract. It is majorly observed in corporations. We have three different reasons to discharge the contract by the operation of law. 


They are by alteration of a written document which fails to perform the obligations in the specific time, by merging the company happens when a big company equals or take over the existing company and due to insolvency means the lack of financial Capital leads to the bankruptcy which results in a discharge of a contract.

6. Describe the Breach of Contract by Condition and by Warranty?

When the discharge of a contract occurs due to an actual breach, it has two subsidiary cases, namely breach by condition, breach by warranty. Then one of the parties is in injured condition; he fails to follow the contractual obligations, then it is referred to as a breach of contract by the condition.


Compared to the bridge by condition, breach by warranty is a minor thing used to terminate the contract in terms of non-material things and their damages if anyone fails to continue the contract perfectly.

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