Discharge of contract means termination of the contractual relationship between the parties. A contract is said to be discharged when it ceases to operate, i.e., when the rights and obligations created by it come to an end.
A contract may be discharged –
- By performance.
- By agreement or consent
- By impossibility or performance
- By lapse of time
- By operation of law
- By breach of contract.
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
Discharge by Agreement or Consent
As it is the agreement of the parties which binds them, so by their further agreement or consent the contract may be terminated. The rule of law in this regard is as follows: Eodem modo quo quid constituitur, eodem modo destruitur, i.e., a thing may be destroyed in the same manner in which it is constituted.Types of discharge by agreement or consent:
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
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