MODES OF DISCHARGE OF CONTRACT:

INTRODUCTION:

The discharge of a contract refers to the termination or cancellation of the contractual relationship between the parties. Once both parties have fulfilled their respective obligations under the contract, their legal liabilities come to an end, and the contract is said to be discharged. However, discharge may occur in several other ways apart from performance.

 

MODES OF DISCHARGE OF CONTRACT:

1. Discharge by Performance

(Sections 37 and 38 of the Contract Act, 1872)

Performance occurs when the parties to a contract fulfill their obligations as agreed. Once performance is complete, the contract terminates.
There are two types of performance:

• Actual performance: When both parties perform their obligations.

• Attempted performance (Tender): When the promisor offers to perform but the promisee refuses to accept.

 

2. Discharge by Agreement or Consent

(Sections 62 and 63)

A contract may be discharged by mutual consent of the parties. Section 62 states that if the parties agree to substitute a new contract, or to rescind or alter the existing one, the original contract need not be performed.
Discharge by agreement may take place in the following forms:

• Novation: Substitution of a new contract for the old one.

• Alteration: Change in terms of the original contract with mutual consent.

• Rescission: Cancellation of the contract by mutual agreement.

• Remission: Acceptance of a lesser performance than agreed.

• Waiver: Abandonment of rights by one party.

• Merger: When an inferior right merges into a superior one.

 

3. Discharge by Impossibility of Performance

(Section 56)

A contract becomes void when an act becomes impossible or unlawful to perform due to circumstances beyond the control of the parties.

Impossibility is of two types:

• Initial impossibility: Where the act was impossible at the time the contract was made.

• Subsequent (supervening) impossibility: Where performance becomes impossible after the contract is formed.

Examples include:

• Destruction of subject matter

• Change in law

• Death or incapacity of a party (in personal service contracts)

 

4. Discharge by Lapse of Time

(Under the Limitation Act, 1908 / 1963, as applicable)

If a contract is not performed within the time prescribed by law, the aggrieved party loses the right to sue for performance. Such lapse of time discharges the contract.

 

5. Discharge by Operation of Law

A contract may also be discharged by the operation of law, irrespective of the parties' intention. This includes:

• Death of a party: In contracts involving personal skill or ability.

• Insolvency: Discharges the insolvent from liability under the contract.

• Unauthorized material alteration: If one party changes the terms of the contract without the consent of the other, the contract becomes void.

• Merger of rights: When the same person becomes entitled to all the rights and obligations under a contract.

 

6. Discharge by Breach of Contract

(Section 39)

When a party fails to perform their obligations, the contract may be discharged by breach. Breach can be of two types:

• Anticipatory Breach: When one party refuses to perform their obligation before the due date of performance.

• Actual Breach: When a party fails to perform on the due date or performs defectively.

In case of breach, the aggrieved party may sue for damages or consider the contract discharged.

 

CONCLUSION:

The discharge of a contract brings an end to the legal obligations created by it. While performance is the most natural mode of discharge, contracts may also be terminated by mutual agreement, impossibility, lapse of time, operation of law, or breach. Understanding these modes is essential to determine when parties are no longer bound under a contract. The Contract Act, 1872 provides a comprehensive framework under various sections to deal with the discharge of contractual relationships and helps in protecting the rights of the parties in case of non-performance or unforeseen events.