What is Discharge of Contract? Explained!

When the responsibilities of the contract between the parties ends, then a discharge of contract occurs. If there is a discharge of contract, then the legal validity of the contract will also end. Discharge of a contract is also referred to as the termination of contract. The best method to discharge a contract is to abide by the terms of the contract till the contract ends. In this blog, we will discuss in detail the various ways to discharge a contract.

By Performance

Performance is related to the completion of the deal as per the terms of the contract. In order to ensure the closure of the deal, both the parties need to complete their end of the contract. The contract will remain open until both the parties give their performances adequately under the contract. The performance of the parties can be of two types i.e. either actual or attempted.

Actual

In a contract, both the parties need to perform or should try to perform all their promises unless such performances are excused by the Indian Contract Act, 1872 or by any other law. The promisors are bound by the promises that they made even if the promisor dies even before the performance ends until a contrary intention is denoted by the contract. This is known as the actual performance.

Attempted

Attempted performance is a form or tender that is predicted and performed in the contract by the promisors. But the attempted performance must be the following:

1. Unconditional
2. Must be for full obligation of the contract
3. Must be formulated at an adequate place and time
4. Must be formulated by an adequate agent for that individual

By Mutual Agreement

There is no need to perform for both the parties if they have come into a mutual agreement. For this, an agreement of substitution with a new contract or of alterations made in the existing contract is needed. There would be a breach of contract if the terms of the agreement are misled by the performance.

Novation

Sometimes, the performance or the payment does not align with the terms of the agreement. Sometimes the debtor may also go bankrupt until a reconstruction of debt has been done. In this type of case, the parties use novation because it is the only way to make payment of the funds.

Recession

Recession is the unwinding of the transaction or the cancellation of the contract. This helps in bringing the parties in the same position they were before entering into the contract.

Alteration

The modification or the alteration of contract by having the consent of both the parties. A new contract is formed as the effect of the alteration.

Remission

When one of the parties permits the other party to delay the time of performance or permits to remit as a whole or in parts. This means the discharge from due, forfeiture, release of penalty, claim or obligation etc.

Waiver

A voluntary surrender or abandonment of the rights of the contract is known as a waiver. It is usually in written form. Sometimes, the actions of an individual can also be considered as a waiver. It has various names like releases, exculpatory clauses or holding of harmless clauses.

By Lapse of Time

In case the performance of the law has not been completed within the specified period, then the discharge of contract occurs. This will also lead to the breach of the contract. In this case, the individual can file a suit in the court in order to enforce his rights from the contract. This can be done in regard to the Limitation Act, 1963. If the stated time period expires, then there will be a discharge of contract and the promisor will not be enforced by the promisee.

By Operation of Law

The performance of the contract is not followed by the provisions of law. This also relates to the changes that are made in the existing law. But this does not involve a court order or an agreement. The conditions under which the termination of the contract can be authorised by the law are listed below:

1. Insolvency
2. Death
3. Changes in the unauthorised materials
4. Mergers

By Supervening Impossibility

Under this, the provisions which have become impossible through a course of time but were possible at the time of establishment of the contract are mentioned. The impossibilities are listed below:

Physical: This relates to the destruction of subject matter.

Practical: This is related to the death or incapacity of one of the parties.

Legal: The foundation of the contract ceases to exist due to the changes made in the law.

Breach of Contract

In case any one or both of the parties do not follow the terms of the contract, then it will be considered as a breach of a contract. Other than this, a breach of contract occurs when the operation of law, tender, impossibility or mutual consent can not explain the performance of the contract. Breach of contract is of two types: Anticipatory and Actual. An Anticipatory breach of contract happens due to the anticipation of the two parties. It is also possible that the two parties have prepared for such a breach of contract earlier. Whereas an actual breach of contract happens when one of the parties commits the breach and also denies to follow the terms of the contract.

Conclusion

In this blog, we came across different methods to discharge a contract. These methods were: the discharge of contract by performance, the discharge of contract by mutual agreement, the discharge of contract by lapse of time, the discharge of contract by operation of law, the discharge of contract by supervening impossibility and the breach of contract.