When the rights and obligations arising out of a contract are extinguished, the contract is said to be discharged or terminated. Thus the discharge of a contract means that the parties are no more liable under the contract.
There are numerous ways, in which a contact can be terminated, which are mentioned in Indian contract, 1872.
- Discharge by performance which is mentioned in sec. 37 of Indian contract act, 1872
A contract creates some duties and obligations. These duties and obligations are bound by the parties to be performed. Once, the due obligations are performed, their liabilities to each other comes to an end.
Hence, by such completion of such performance by both the parties to the contract, the said contract is deemed to be discharged
- Discharge by the agreement:
Contracts is the result of an agreement between two or more parties. Sometimes, parties with their mutual consent or agreement, discharge the contract.
There are different ways in which a contract can be discharged by agreement:
- Novation (sec. 62): Substitution of a new contract in the place of an old contracts is called as novation to contract. It discharges the old contract. The contract created in the place of the old one can be done with the same parties or with some new parties. Novation takes place only with the consent of all parties.
- Alteration (sec. 62): alteration means change in one or more terms in the contract. The parties to such contract remain the same. It only takes with consent of all the parties.
- remission (sec. 63): remission means accepting a lesser amount of performance than what was already decided in the contract. In short, it means exemption of the performance of the contract. There is no need for consideration in remission of contract.
- Rescission(sec.66): rescission means cancellation. All or some terms of the contract can be cancelled. When all terms of the contract are cancelled, then it is called as total rescission. When some terms of the contract are cancelled, then it is called as partial rescission.
- Waiver (sec. 63): waiver means giving up of the foregoing certain duties and obligation. When a party agrees to give up some of their rights, it is called a waiver of the contract.
- Merger: when the inferior rights of the contract, is added together with the superior rights of the contract then it is said to be a merger of the contract. The contract with the inferior rights, will come to an end. Hence, the contract gets terminated
- Discharge by lapse of time:
Every contract must be performed under the stipulated time or under reasonable time since, the contract came into existence. Lapse of times, discharges the contract.
The limitations act has prescribed within which the existing rights of a contract can enforced in the courts.
- Discharge by the impossibility to perform:
Impossibility may appear on the face of the contract, or may exist unknown to the parties while entering into the contract or may arise subsequently after the contract is made.
a) Initial impossibility:
Sec. 56 states “an agreement to do an act impossible in itself is void”
The object to making any contracts, is that all the duties and obligation to the parties is to be performed, by their respective promises. Impossibly here, does not mean physical impossibility but also legal possibility. If, a contract is impossible to perform, it will never fulfil its object and hence, it will be void. To safely conclude, any promise pf performance which is prima facie physically and legally impossible to perform, would be rendered void.
b) Subsequent impossibility:
Sec. 56(2) states “A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful”
It means that every contract is based on the assumption, that the parties will perform their due duties and obligations. If because of some change in event, the performance d the contract becomes impossible to perform, or with the performance has become unlawful, the contract is termed as void.
In Taylor v. Caldwell, a music hall, was let out of for a series of concerts on certain days. The halls were accidentally burnt down before the date of the first concert. The contract was held out to be void.
- Discharge by the breach:
Breach means failure of a party to perform his duties or obligation in a contract. Breach may be actual or anticipatory. Brings beings an end to the contract made by the parties.
- Actual breach of the contract:
Actual breach or present breach of the contract is committed when:
– At the time, when performance is due:
– During the performance of the contract.
In simpson v. crippin, the bye, who send wagons of 8 thousand tons of coal, sent only wagons for 158 tons. It was held that, the contract was void
2. Anticipatory breach:
Anticipating means ahead in doing something, here the eventual breach is done ahead of the stipulated time of performance.
Anticipatory breach is a premature breach of the contract, instead of failure of the performance. It may arise ahead due to:
– impossibly of the party for performance
– repudiation of one party before the date of its performance.
In west Bengal financial corporation c. gluco series, a loan was given to the gluco series in two installments, stating if the first instalment is paid ad done, they will further be granted with the loan of second instalment, upon non-repayment of the loan of first instalment, there was a breach of contract and hence, the second instalment was not granted.
- Discharge by the operation of law:
A contract can be discharge by the parties in the following cases:
In contracts involving of personal skills or ability, then the death of the person, brings the contract to an end.in other cases, the rights and liabilities will be passed on to the legal representative
The insolvency of the promisor brings the contract to an end. The insolvent promisor is discharged from all his rights and liabilities prior to adjudication.
3. Unauthorized alteration to the contract:
Any alteration which is made into the contract which affects the right and liabilities of the parties involved is called material alteration. Material alteration to the contract without the consent of the parties, discharges the contract.
Therefore, a contract can be discharged by either fulfilling the obligations and duties which was promised during the time of formulation of contract or they can be discharged by mutual agreement, lapse of stipulated time, breach of performance, by operation of law or by impossibility. Once the contract is discharged or rendered terminated, all the obligation ad the rights which arose with the contract will be extinguished and the parties to the contract will no longer be bound to each other via these rights.
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