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).
2) Discharge of contract -
There are various modes of discharge of a contract which are as follows :
1. By performance
2. By agreement or consent
3. By impossibility
4. By lapse of time
5. By operation of law
6. By breach of contract
1. 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 (tender)
(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) Tender or Offer of 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.
'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.
If only one party performs the promise, he alone is discharged. Such a party gets a right of action against the other party who is guilty of breach of contract.
See also...Doctrine of Privity of contract
2. Discharge by agreement or consent:
A contract rests on the agreement of the parties. As it is an agreement which binds them, so by their agreement or consent they may be discharged.
A contract may be terminated by subsequent agreement. The new agreement may be by way of :
a) Novation- Section 62 of the Indian Contract Act deals with the doctrine of novation. when a new contract is substituted for an existing one, either between the same parties or between the new parties. If the parties to a contract agreed to substitute a new contract for it or to rescind or alter it, the original contract need not be performed.
b) Alteration-. i.e., when one or more of the terms of the contract is/are altered by the mutual consent of the parties to the contract.
c) Rescission- i.e., when all or some of the terms of the contract are canceled.
d) Remission- Section 63 of the Indian Contract Act 1872 speaks about the discharge of a contract by remission. i.e., acceptance of a lesser fulfillment of the promise made.
e) Waiver - which means intentional relinquishment or giving up of a right by a party entitled thereto under a contract.
f) Merger- i.e., when an inferior right accruing to a party under a contract merges into a superior right accruing to the same party under a new contract.
See also... By Whom Must Contract be Performed?
3. Discharge by Impossibility of Performance:
If the performance of a contract is impossible, it is void. In other words, the impossibility of performance renders the contract void. Section 56 of the Indian Contract Act 1872 lays down the provisions relating to the impossibility of performance, which runs as follows -
" An agreement to do an act impossible in itself is void." Impossibility which arises subsequent to the formation of a contract ( which could be performed at the time when the contract was entered into ) is called subsequent or supervening impossibility include-
a) destruction of the subject-matter of contract;
b) non-existence or non-occurrence of a particular state of things;
e) death or incapacity for personal service;
d) change of law or stepping in of a person with statutory authority;
e) outbreak of war. The contract is discharged in these case.
The following cases are not covered by supervening impossibility ;
a) difficulty of performance;
b) commercial impossibility;
c) failure of a third person on whose work the promisor relied;
d) strikes, lockouts and civil disturbances;
e) failure of one of the objects. The contract is not discharged in these cases.
4. Discharge by lapse of time:
The limitation act 1963, imposed an obligation on the parties in respect of certain contacts to perform within a specified. If a contract is not performed within the period of limitation and if no action is taken by the promise in a law court, the contract is discharged.
5) Discharge by operation of law:
A contract may be discharged by operation of law.
It includes discharge by
c) Insolvency/ Bankruptcy
d) Unauthorized Alteration of the terms of a written agreement, and
e) Rights and liabilities becoming vested in the same person.
f) Judgement of Court
6) Discharge by breach of Contract:
Breach of contract means failure to perform the contractual obligation by either of the parties without any lawful excuse. It is a ground for discharge of the contract.
Breach of contract may be -
1) Actual breach, or 2) Anticipatory breach.
1) Actual breach of contract may occur a) at the time when the performance is due, or b) during the performance of the contract.
2) Anticipatory breach of contract occurs when a party repudiates his liability or obligation under the contract before the time for performance arrives.
Discharge of Tort
Stranger to Contract can Sue | Exceptions to the Doctrine of Privity of Contract