Discharge of contracts
Discharge of contract means end of the contractual relationship between the parties. When the rights and obligations of the parties comes to an end, it is said that contract is discharged.
A brief description of these is as follows –
2.By agreement or consent.
4.By lapse of time.
5.By operation of law.
6.By breach of contract.
A brief description of these is as follows:
1. Discharge by Performance- When the contract is performed by both the parties and there nothing remains to do, then it is called discharge by performance. In such a case both the parties are discharged and contract comes to an end. But if only one party performs the promise, he alone is discharged.
Performance of contract is very common way of discharge. It may be (a) actual performance or (b) attempted performance.
(a) Actual performance- When each party to a contract fulfils his obligation arising under the contract within the time and in the manner prescribed, it amounts to actual performance of the contract and the contract comes to an end or stands discharged.
(b) Attempted performance or tender- When the
promisor offers to perform his obligation under the contract, but is unable to do so because the promisee does not accept the peformance, it is called ‘attempted performance’ or ‘tender
2. Discharge by mutual consent or agreement: Since a contract is created by agreement, it may be discharged by another agreement by the same parties. The rule is that ‘a thing may be destroyed in the same manner, in which it is created’.
The various cases of discharge of a contract by mutual agreement are as follows:
(1) Novation- When a new contract is substituted for the existing contract, it is called novation. When the new contract is agreed by Novation’, the original contract is discharged and need not to be performed.
A owes B Rs. 1,000 under a contract. Bowes
C Rs. 1,000. B orders A to credit C with Rs. 1,000 in his books, but C does not assent to the agreement. B still owes C Rs. 1,000 and no new contract has been entered into.
(ii) Alteration- Alteration means change in one or
more of the terms of contract. If there is a material alteration in the contract by mutual consent, the original contract is discharged and a new contract in new form takes place. It is important to note that material alteration should be done with the mutual consent of all the parties, otherwise it will take the whole contract void.
(iii) Rescission- A contract may be discharged be-
fore the date of performance, by agreement between the parties. Such an agreement is known as rescission.
Ex A promises to deliver certain goods to B on a certain date. Before the date of performance, A and B mutually agree that the contract stands discharged by rescision
(iv) Remission- Remission means acceptance of lesser sum than what is contracted or lesser fulfilment of the promise.
Ex. A owes B Rs. 5,000. A pays to B Rs. 2,000 and
B accepts in satisfaction of the whole debt, Rs. 2.000 at the time and place at which Rs. 5,000 were payable. The whole debt is discharged.
(v) Waiver- Waiver takes place when the parties to a contract agree that they shall no longer be bound by the contract. This amounts to a mutual abandonment of rights by the parties to the contract. Consideration is not necessary for waiver.
3. Discharge by Subsequent or Supervening Impossibility: When the nature of the contract is such that it is not possible to perform the contract, there it is known as impossible contract. If the contract is such that which is entered into to perform something that is impossible then it is void ab-initio.
There is no question of discharge of an impossible contract because-
1.The law does not recognise what is impossible; and
2. What is impossible does not create an obligation.
Subsequent Impossibility: Impossibility, when arises subsequent to the formation of a contract is called supervening impossibility. In such a case the contract becomes void when the act becomes impossible. If the impossibility is caused by the reasons which are beyond the control of the parties, the parties are discharged from further performance of the obligation:
A contract is discharged by supervening impossibility in the following cases.
a.When the subject matter of the contract is destroyed.
b.Death or incapacity of the parties.
c.Change of law.
d.Outbreak of war.
A lady artist undertook to perform at a con-
cert for a certain price. Before she could do so, she was taken seriously ill. Held, she was discharged due to illness.
4. Discharge by lapse of time: According to law of
Limitation Act 1963, a contract should be performed within a specified period. That period is called period of limitation. If it is not performed and no action is taken by the promisee within the period of limitation, he can not take legal action in the court. In other words, we can say that the contract is terminated.
5. Discharge by Operation of Law: A contract may
be discharged by the operation of law in the following cases-
(a) Death- If the contract involves personal skill or
ability, the contract is terminated on death of the promisor.
In other contracts, the rights and liabilities pass on to the legal representatives of the deceased person.
(b) Insolvency- When a person is adjudged insol-
vent, he is discharged from all his previous liabilities.
(c) Merger- Where an inferior right contract is merged into superior right contract, the former is discharged automatically. For example where a part time lecturer is made full time lecturer, the contract of part-time lecturership is discharged by merger.
(d) Unauthorised material alteration- If a material
alteration is made in a written document by one party without consent of other, the whole contract will become void. An alteration is called material if it changes legal character or right and duties of the parties to the contract.