Various modes of Discharging of a Contract

Discharge of a contract means termination of the contractual relations between the parties to a contract. A contract is said to be discharged when the rights and obligations of the parties under the contract come to an end. Modes of discharge of contract

Discharge by Performance
A contract can be discharged by performance in any of the following ways:

(a) By Actual Performance A contract is said to be discharged by actual per-formance when the parties to the contract perform their promises in accordance with the terms of the contract.

(b) By Attempted Performance or Tender A contract is said to be discharged by attempted performance when the promisor has made an offer of performance to the promisee but it has not been accepted by the promisee.

Discharge by Mutual Agreement
Since a contract is created by mutual agreement, it can also be discharged by mutual agreement. A contract can be discharged by mutual agreement in any of the following ways:

a) Novation [Section 62] Novation means the substitution of a new contract for the original contract. Such a new contract may be either between the same parties or between different parties. The consideration for the new contract is the discharge of the original contract.

(b) Rescission [Section 62] Rescission means cancellation of the contract by any party or all the parties to a contract.

(c) Alteration [Section 62] Alteration means a change in the terms of a contract with mutual consent of the parties. Alteration discharges the original contract and creates a new contract. However, parties to the new contract must not change.

(d) Remission [Section 63] Remission means acceptance by the promisee of a’ lesser fulfillment of the promise made. According to Section 63, “Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.”

(e) Waiver Waiver means intentional relinquishment of a right under the con-tract. Thus, it amounts to releasing a person of certain legal obligation under a contract.

Discharge by Operation of Law
A contract may be discharged by operation of law in the following cases:

(a) By Death of the Promisor A contract involving the personal skill or ability of the promisor is discharged on the death of the promisor.

(b) By Insolvency When a person is declared insolvent, he is discharged from his liability up to the date of his insolvency.

(c) By Unauthorised Material Alteration If any party makes any material alteration in the terms of the contract without the approval of the other party, the contract comes to an end.

(d) By the Identity of Promisor and Promisee When the promisor becomes the promisee, the other parties are discharged.

Discharge by Impossibility of Performance
The effects of impossibility of the performance of a contract may be discussed under the following two heads:

(a) Effects of Initial Impossibility

(b) Effects of Supervening Impossibility

(c) Declaration of War The pending contracts at the time of declaration of war are either suspended or declared as void.

(d) Change of Law The contract is discharged if the performance of the contract becomes impossible or unlawful due to change in law after the formation of the contract.

Discharge by Lapse of Time
A contract is discharged if it is not performed or enforced within a specified period, called period of limitation. The Limitation Act, 1963 has prescribed the different periods for different contracts, e.g. period of limitation for exercising right to recover a debt is 3 years, and to recover an immovable property is 12 years. The contractual parties cannot exercise their rights after the expiry of period of limitation.

Discharge by Breach of Contract
A contract is said to be discharged by breach of contract if any party to the contract refuses or fails to perform his part of the contract or by his act makes it impossible to perform his obligation under the contract. A breach of contract may occur in the following two ways:

(a) Anticipatory Breach of Contract Anticipatory breach of contract occurs when party declares his intention of not performing the contract before the performance is due.

(b) Actual Breach of Contract Actual breach of contract occurs in the following two ways:

(i) On Due Date of Performance: If any party to a contract refuses or fails to perform his part of the contract at the time fixed for performance, it is called an actual breach of contract on due date of performance.