Discharge of Contract, Meaning and Modes
Izhar Ahmad13 Mar, 2025
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The term "discharge of contract" refers to the termination of contractual obligations, meaning that no party remains liable under the agreement. A contract can be discharged positively, through performance, or negatively, through breach. Understanding the various modes of contract discharge is essential for ensuring compliance with legal frameworks and avoiding disputes.
What is a Contract?
A contract is a legally binding agreement that imposes specific responsibilities on both parties. Once an agreement is enforceable by law, both parties must adhere to its terms. Contract law governs these agreements, ensuring that commitments are upheld and legal obligations are met.
Modes of Discharge of Contract
There are various modes of discharge of contract, a few of them are mentioned and explained below:- Discharge by Performance
- Discharge by Agreement or Consent
- Discharge by Impossibility of Performance
- Discharge by lapse of Time
- Discharge by Operation of Law
- Discharge by Breach of a Contract
Discharge of Contract by Performance
Once the involved parties fulfill their respective obligations as outlined in the contract, the contract is considered discharged. This process, termed the natural mode of discharge, involves two key aspects of performance:Actual Performance: When all parties involved in a contract fulfill their agreed-upon responsibilities, it is referred to as actual performance.
Attempted Performance (Tender or Offer of Performance): In cases where the promisor endeavors to fulfill their promise but the promisee declines to accept it, this is known as tender or attempted performance.
Discharge of Contract by Agreement or Consent
Section 62 of the Indian Contract Act of 1872 states that when parties in a contract freely decide to replace it with a new agreement or modify/rescind it, there is no duty to fulfill the original contract. This comes under the area named "Effect of Novation, Rescission, and Alteration of Contract." There are six ways in which a contract can be canceled through mutual understanding or consent, as described below:Novation: Novation occurs when the parties in a contract mutually decide to replace the existing contract with a new one. This concept was elucidated by Lord Selborne in the renowned Scarf v. Jardine case
Alteration: Alteration of a contract refers to the modification of one or more terms by the mutual consent of the contracting parties. The United India Insurance Co. Ltd v. M.K.J. Corporation case established that no party can, even in good faith, make a material alteration to the contract without the agreement of the other party.
Rescission: Rescission of a contract takes place when some or all of the terms of the contract are annulled.
Remission: Section 63 of the Indian Contract Act, 1872 addresses the discharge of a contract through remission. This involves accepting a sum less than what was originally owed by the promisor or agreeing to a partial fulfillment of the promise made.
Waiver: Waiver occurs when an individual relinquishes some or all of their legal rights under an agreement. The Supreme Court has clarified that waiver is the voluntary abandonment of a right that one is normally entitled to waive.
Merger: - A merger happens when a lesser right acquired by a party under a contract combines with a superior right obtained by the same party under a new contract.
Discharge of Contract by Impossibility of Performance
In this situation, the contract is discharged without any direct role or interference from either party. While everything may be in order originally, unexpected, and unclear situations can arise, lowering the chance of contract completion. Such reasons may include market downturns, natural disasters, lack of legal justification, unfortunate events, and the like. Section 59 of the Indian Contract Act clearly states that if any of these reasons hinder performance, it is wise to end the agreement.
Discharge of Contract by lapse of Time
As per the Limitation Act of 1963, if an agreement cannot be fulfilled within the specified timeframe, it can impact the other party and result in the nullification of the entire contract. In such cases, it is considered a contractual discharge due to the lapse of time.
Discharge of Contract by Operation of Law
This occurs when the legal system puts an end to the contractual obligations of parties. It involves making people responsible for specific tasks based on established legal rules, while simultaneously decreasing a party's legal responsibilities in line with the contract. When, under these conditions, the contract is not enforceable, it is canceled immediately by legal processes. instances where the law allows contract termination include:
- Bankruptcy
- Death
- Illegal changes in materials
- Merger
Discharge of Contract by Breach of a Contract
A breach of contract focuses on ending the original agreement because one or all parties fail to meet their responsibilities, thereby causing dissatisfaction among the involved parties. It includes making the original contract null or ending it totally. These breaches can take the form of either anticipatory or actual violations.
Understanding the discharge of contracts is crucial for legal compliance and smooth business transactions. Whether a contract is completed through performance or terminated due to unforeseen circumstances, knowing the various modes of discharge helps parties navigate their legal rights and responsibilities effectively.
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Discharge of Contract FAQs
What is Section 63 of the Contract Act?
What are the 5 ways a contract can be terminated?
What is termination, dismissal and discharge?
What is Section 69 of the contract?
Who can terminate a contract?
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