DISCHARGE OF CONTRACT

Presented by : Nimesh Prajapati

Discharge of contract:
Discharge of a contract refers to a process, by which the rights and obligations arising out of a contract come to an end. Thus, discharge of a contract means termination of a contract.

A contract may be discharged in any of the following ways:

1. By performance 2. By mutual consent or agreement 3. By subsequent or supervening impossibility or illegality 4. By lapse of time 5. By operation of law 6. By breach of contract.

Discharge by performance
Actual performance Attempted performance or Tender

Discharge by mutual consent or agreement:

Novation: when a new contract is substituted for an existing contract, either between the same parties or different parties, the consideration for such contract being the discharge of the old contract. Where the contract is between same parties, then the nature of the obligations must be altered substantially or else it shall amount to alteration & not novation. Novation cannot be compulsory, it has to be with the mutual consent of all the parties. The new contract must be valid & enforceable, if it suffers from any legal flaw, then the original contract shall revive.

Alteration:
Alteration of a contract refers to change in one or more of the material terms of a written contract.

Rescission:
Rescission of a contract means cancellation of an existing contract without substituting a new contract in its place. A contract is said to be discharged by rescission, when the parties come to an agreement, before the date of performance, that the contract is no longer binding on them. The consideration for such an agreement is abandonment of their respective rights under the contract, thus releasing each other of their contractual obligations.

Contd..
An agmt. for rescission of contract is to be distinguished from agmts in restraint of legal proceedings which are void under the Act. An agreement for rescission is an agmt. out of mutual consent to excuse performance of contractual obligations. Thus, an agmt to excuse performance is valid, where as an agmt not to sue for breach is void.

Remission:
It is the acceptance of a lesser sum or lesser fulfillment of the promise made. A promisee may remit either entire or a part of the promise made to him and a promise to do so is binding even though there is no consideration for it. An agmt to extend the time for the performance of the promise does not require consideration either.

Waiver:
The deliberate abandonment of a right which a party has acquired under the contract, where upon the other party is released from his obligation is waiver.

Subsequent impossibility or illegality:

A contract to do a particular act, which becomes impossible or illegal, due to an event which the promisor could not prevent, becomes void and stands discharged. The impossibility should be beyond the control of the promisor and not be self induced. In order to render an act impossible, it is sufficient if it has become impractical, useless or extremely hazardous.

Cases not covered under supervening impossibility:

Difficulty of performance: increased difficulty or expense. Commercial impossibility: when actual loss becomes certain. Default of third party: failure on the part of a third party on whom the promisor relied. Strikes & lock-outs: the former is manageable & the latter is self-induced. Failure of one of the objects

Lapse of time:
Where time is the essence of contract & one of the party fails to perform his promise within the stipulated time, the other party is discharged from performing his promise & can claim damages. Where there is failure to perform the promise by both parties to the contract for a long period, the contract stands discharged.

Operation of law:
Death: contracts involving personal skill or of a personal nature, stand discharged with the death of the promisor. Insolvency: when the insolvency court passes an order of discharge, the contract stands discharged. Merger: where an inferior right contract merges with a superior right contract, the former stands discharged automatically. Unauthorized material alteration: renders the contract void and hence it stands discharged.

Breach of contract:
Breach of contract brings an end to the obligations arising out of a contract, and hence the contract stands discharged. The aggrieved party can sue for damages. Breach of contract may be anticipatory or actual.

Anticipatory breach:
Such a breach occurs before the time stipulated for performance has arrived. Anticipatory breach may be express or implied. The aggrieved party may sue the other party for breach, immediately or wait until the due date arrives and then sue. Where he chooses to wait until the due date, the contract remains in operation and the other party may either perform his part of the contract or take advantage of any supervening impossibility.

Actual breach:
Actual breach occurs when a party fails to perform his obligations upon the date fixed for performance of contract. There can be no actual breach so long as the time for performance has not yet arrived. The aggrieved party may sue for damages.