Discharge of Contract

Meaning

•  Termination of contractual relationship between the parties

• Contract is said to be discharged when it cases to operate

• When right and liability created by it comes to an end

A contract may be discharged

By Performance By AgreementBy impossibility of performanceBy Laps of TimeBy Operation of lawBy Breach of contract

1. Discharge of Contract by Performance

• This means doing what is required by a contract• This takes place when parties to the contract

fulfill their obligations arising under the contract within time and manner prescribed.

• Only if one party performers – he alone is discharged.

• Such party gets a right over other party who is under guilty of breach.

• Discharge of contract By Agreement or consent

1 Novation New contract is entered in place of old contract

between one of the party Consideration for new contract is discharge of old

contractExp A owes money to B under a contract. It is agreed

between A,B and C that B shall henceforth accept C as his debtor. Old debt between A and B is at end and new debt from C to B has been commenced.

Rescission

• It takes place when all or some of the terms of the contract are cancelled may be by mutual of all or where one party fails in the performance.

• It may be total or partial• Exp : A promises to supply certain goods to B

after 6 months. By that time the goods go out of fashion. A and B may rescind the contract.

Alteration

• Alteration of contract may take place when one or more of the terms of the contract is /are altered

Exp : A enter in to contract with B for supply of 100 bags of rice by next month at his warehouse No 1 . They may alter the contract by mutual consent.

Remission

• Acceptance of lesser fulfillment of the promise made.Exp : A owes Rs 10000 to B. A pays to B Rs 7000 and B accepts in satisfaction of whole debt. Rs 7000 paid in place of Rs10000.

The whole debt is discharged.

Waiver and Merger

• Waiver – Parties agree that they shall no longer be bound by contract. Mutual abandonment of rights by parties.

• Consideration not necessary for waiver

Merger- Inferior right accruing to party under the contract merges into a superior right accruing to same parties.

Exp : A who holds property under lease. A buys the property. His right as lessee merge into his ownership right.

Discharge by Impossibility of performance

• Impossibility existing at the time of agreement – VoidExp : A agrees with B to discover the money by magic. Agreement void ab initio

• Post contractual impossibility - Contract becomes void when act becomes impossible or unlawful.Exp: C lets the music hall to T for concert. The hall has accidently

burnt down before the concert date. Held – Contract is void. • Death or incapacity for personal services• Change of law• Out break of war

Impossibility of performance not an excuse

• Impossibility of performance as a rule not excuse for non – performance.

• When a person undertakes to do some thing he must do it unless his performance becomes absolutely impossible due to any of the already discussed circumstances.

In following contract is not discharged on the ground of impossibility of

performance.• 1. Difficulty to perform

• 2. Commercial Impossibility

• 3.Impossibility due to failure of third person

• 4.Strikes,lock-outs civil disturbance

Discharge by Laps of Time

• As per The Limitation Act, 1963, Debt becomes time barred debt if no action is taken within 3 years.

Discharge by Operation of Law

• By death – Contract involving personal skill or ability gets terminated on the death of promisor.

• In other contract right and liability of deceased person pass on to the legal representatives of deceased person.

• By merger • By insolvency • Un authorized alteration ( material)of terms of

written agreement without consent of other party.

Discharge by Brach of Contract

• Meaning – Breaking of the obligation which contract imposes.

• It confers a right of action for damages on the injured party

• Brach may be 1 Actual

2. Anticipatory