Theoretical overview
The discharge of contract is defined as the termination of a contract or an agreement made by two parties with the fails in performing the obligations mentioned at the time of creating an agreement with the acceptance of both parties like free of consent. Hence the obligations may be contractual or legal or operational or even by the performance itself. So it is important to understand the methods of discharge of a contract.
Discharge of a Contract means to terminate (end) it. Therefore, there are many types of discharges and there are different ways to terminate a contractual obligation. The discharge of a contract refers to the manner in which it ends. Discharge of contract means termination of the contractual relationship between the parties. A contract is said to be discharged when it ceases to operate, i.e., when the rights and obligations created by it come to an end
DISCHARGE BY AGREEMENT .
A contract stands on the agreement of the parties. As it is an agreement that binds them, they can be discharged by their agreement or consent. If either of the person in the contract is not willing to continue the contract till you date then it is converted to the other party whether they may accept or not, the discharge of the contract by the agreement will happen. A contract may be terminated by a subsequent agreement
S. 62. Effect of novation, rescission and alteration of contract. — If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. When the parties to a contract agree to substitute the existing contract with a new contract, that is called novation.
Two types of novation-
(1) change of parties; and
(2) substitution of a new contract in place of the old.
REMISSION OF PERFORMANCE
S. 63. Promisee may dispense with or remit performance of promise.— 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.
The effect of the provision is that the party who has the right to demand the performance of a contract may—
(1) remit or dispense with it, wholly or in part; or
(2) extend the time for performance; or
(3) accept any other satisfaction instead of performance
ACCORD AND SATISFACTION
The accord is an agreement made after breach whereby some consideration other than his legal remedy is to be accepted by the party not in fault, followed by performance of the substituted consideration.
DISCHARGE BY BREACH
“A breach of contract occurs when a party thereto renounces his liability under it, or by his own act makes it impossible that he should perform his obligations under it or totally or partially fails to perform such obligations.”^ The failure to perform or renunciation may take place when the time for performance has arrived or even before that. Thus, breach is of two kinds, namely:
(1) anticipatory breach, and
(2) present breach.
Relevant section
S. 62. Effect of novation, rescission and alteration of contract. — If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.
S. 63. Promisee may dispense with or remit performance of promise.— 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 per formance or may accept instead of it any satisfaction which he thinks fit.
Important case laws
Charles Richards Ltd v Oppenheim, (1950) 1 KB 616 (CA).
Held- The buyer had the right to make time as of the essence again by giving reasonable notice and that the notice given by him was rea sonable. He had rightfully rescinded the contract and was entitled to dam ages for breach.
D.D.A. vs. Joint Action Committee
Facts of the case: – The appellant, a contracting party, intended to alter or modify the terms of allotment of flats, it was obligatory on its part to bring the same to the notice of the allottee. Having not done so, the D.D.A. relying on or based on the purported office orders which were not backed by any Statute, new terms of the contract could not be thrust upon the allottees.
Judgement of the Case: – In this case, the court held that the levy by the D.D.A. of additional amount of 20% and a surcharge of 20% over the ordinary cost of construction by issuing office order after the allotment of flats was held improper.
Points to remember
- The discharge of contract is defined as the termination of a contract or an agreement made by two parties with the fails in performing the obligations mentioned at the time of creating an agreement with the acceptance of both parties like free of consent.
- A contract stands on the agreement of the parties. As it is an agreement that binds them, they can be discharged by their agreement or consent
- “A breach of contract occurs when a party thereto renounces his liability under it, or by his own act makes it impossible that he should perform his obligations under it or totally or partially fails to perform such obligations.
DISCHARGE OF CONTRACT
Discharge of contract means a termination of a contractual relationship between parties. A person is liable to perform contractual duties until he or she is discharged. If the person fails to act without being discharged, responsibility for the loss will arise. The contract may be discharged from full compliance or non-performance of the contractual obligation. Each contract contains an “implied covenant of goodwill” that the parties will act impartially, keep their promises, and not frustrate the other party’s reasonable expectations as to what has been given and what has been received.
A contract is said to be discharged when the object or obligations is fulfilled, the liability of either party under the contract comes to an end.
Types of Discharge
Discharge by Full Performance
A contract can be discharged when the parties to the contract fulfill their obligations or duties according to the terms of the contract. However, the obligations and duties must be performed within the prescribed time and in the prescribed manner. For example: – Raman enters into the contract with Salim for the sale of watch for 1000 rupees. Salim receives the watch and Raman get his consideration in return. Here, both the parties did their part after this they will be discharged from the contract.
Discharge of full performance is of two types: –
Actual Performance :– When the contracting parties perform what they have mentioned in the contract, it is called the actual performance.
Attempt to Perform :– A promise made is when one side of the contract attempts to fulfill its promise, but the other party refuses to accept it.
Discharge of Contract by Time Lapse
The Limitation Act, 1963 provides for a specific period for the performance of a contract. If the party to the contract does not perform its duties or obligation within a specified period and if the aggrieved party fails to take any action within the specified time, then this lapse of time will lead to the discharge of the contract. For example: – Samar gives his house on rent to Karan on a condition that Karan will pay her rent to him every month. He went to US and forget about the rent then he came back India after 10 years. Then he asked for the rent from Karan, he refused. He filed the suit in the court against Karan for the recovery of rent. The court dismissed the plea as he crossed the time limit for the recovery of rent.
Discharge of Contract from Impossibility of Performance
The contract can be discharged from the impossibility of performance where it is almost impossible for the parties to fulfill their obligations or duties as per the contract. Usually the non-performance of the contract is due to circumstances beyond the control of the parties i.e. natural calamities, unforeseen circumstances, government policies, wars/riots, destruction of content, etc. If a contract is impossible from the beginning, it is void-ab-initio. For example: – Akram enters into a contract with Keshav for the supply of 10kg rice for 30,000rs. But the crops gets destroyed due to heavy rain and the Keshav is unable to perform his obligation. Here, in this case, the impossibility of performance leads to discharge of contract.
Discharge of Contract by Mutual Agreement
The contract is said to be discharged by the mutual agreement, when the parties to the replace the contract with the new one. For example: – Karan enters into agreement with Shikha for the sale of his black car worth rupees 5lacs. Later Karan changed his mind and decided to sell his white car to Shikha. Here the old contract of black car was replaced by the new contract of the sale of white car.
Discharge of Contract by Operation of Law
A contract can be discharged from the operation of the contract. When the parties’ obligations to the contract cease due to interference with the law, it is said that the contract is discharged from the operation of the law. Discharge of contract from operation of law includes death, insolvency / bankruptcy, merger, court decision, unauthorized change of terms of a written agreement and the rights and obligations vested in the same person. For example: – Anand enters into the contract for the sale of his house with Reena. Anand dies before the parties could perform their obligations. Here, in this case the contract will be discharged by the operation of laws
