Discharge of a Contract

A contract creates legal obligations between parties. However, a contract does not last forever. When the obligations under a contract come to an end, the contract is said to be discharged.

In this article, we will understand the meaning, methods, and examples related to the discharge of a contract under the Indian Contract Act, 1872.

Meaning of Discharge of Contract

Discharge of contract means the termination of contractual obligations. After discharge, the parties are no longer bound to perform their promises.

Modes of Discharge of Contract

There are several ways a contract can be discharged:

• By performance

• By agreement or consent

• By impossibility of performance

• By operation of law

• By breach of contract

Let’s understand each one clearly.

1. Discharge by Performance

When the parties to a contract fulfill their respective obligations properly, the contract comes to an end.

• Actual Performance: Both parties perform their promises.

• Attempted Performance (Tender): One party offers to perform, but the other refuses.

Example:
A agrees to sell and deliver goods to B for ₹10,000. A delivers the goods, and B pays the money. The contract is discharged by performance.

2. Discharge by Agreement or Consent

Parties can mutually agree to terminate or alter a contract. Section 62 of the Act recognizes this.

Types of discharge by agreement include:

(a) Novation

Replacing an old contract with a new one, either between the same parties or different parties.

Example:
A owes B ₹10,000. They agree that C will now pay B instead. The old contract is discharged.

(b) Rescission

Cancelling the contract by mutual agreement.

Example:
A and B agree to cancel their contract for the sale of a car.

(c) Alteration

Changing the terms of the contract by mutual consent.

Example:
A and B agree to extend the delivery date of goods.

(d) Remission

Accepting lesser performance than agreed.

Example:
B agrees to accept ₹8,000 in full settlement of A’s debt of ₹10,000.

(e) Waiver

Abandoning rights under the contract.

Example:
B waives his right to sue A for late delivery.

3. Discharge by Impossibility of Performance

A contract becomes void if, after it is made, performance becomes impossible.

This is called doctrine of frustration (Section 56).

Situations include:

• Destruction of subject matter

• Change of law

• Death or incapacity in personal contracts

Example:
A contracts to sing at B's theatre on a certain date. A falls seriously ill and cannot perform. The contract is discharged.

Key Point: Impossibility must not be self-created. It must be beyond the control of the parties.

4. Discharge by Operation of Law

In some cases, contracts are discharged automatically by law. These include:

• Death: In contracts involving personal skills.

• Insolvency: When a party is declared bankrupt.

• Merger: When an inferior right merges into a superior right.

Example:
A is declared insolvent. His existing contracts are discharged.

5. Discharge by Breach of Contract

When a party fails to perform their promise, it leads to a breach of contract. The aggrieved party may:

• Treat the contract as discharged, and

• Claim damages for loss.

Types of breach:

(a) Actual Breach

Failure to perform on the due date.

Example:
A does not deliver goods on the promised date.

(b) Anticipatory Breach

A party refuses to perform before the due date.

Example:
A agrees to deliver goods to B on 1st June. On 20th May, A informs B he will not deliver.

Key Point: In case of anticipatory breach, the aggrieved party can either sue immediately or wait till the due date.

Summary of Modes of Discharge

Conclusion

To conclude, a contract is discharged when the rights and obligations under it come to an end. The Indian Contract Act, 1872 recognizes various ways of discharge, including performance, agreement, impossibility, operation of law, and breach. Understanding these modes is crucial for evaluating the lifecycle of a contract and the remedies available when things go wrong.