Discharge of Contract

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Discharge of Contract: (Under the Indian Contract Act, 1872)

A contract may be discharged under the following grounds:

1. Performance of Contract: A contract can be discharged by actual performance or attempted performance. Actual performance occurs when parties to the contract fulfil their obligations precisely and completely in accordance to the contract. Attempted performance or tender is offer to perform. (except for tender of money), when the promisor offers to perform, and the promisee refuses to accept, then tender is equivalent to actual performance

2. Discharge by Agreement: “Things may be destroyed in the same manner in which it is constituted”. It is necessary for the parties to the contract to mutually agree to discharge the contract by agreement. The grounds for discharge by agreement are:

   a. Waiver: this is mutual abandonment of the contract- no consideration is required

   b. Alteration: changes in terms of the contract

   c. Recission: cancellation of some or all the terms),

   d. Novation: new contract with the same or a third party before the expiry of the contract

   e. Remission: acceptance of lesser fulfilment

   f. Merger: merger of inferior rights under a contract with superior rights under another contract with the same party.

3. Impossibility of performance: Impossibility can be pre contractual or post contractual (supervening impossibility Sec 56). The ICA provides for the grounds under which the supervening impossibility is acceptable, and where it is not acceptable. Situations under which it is acceptable (performance is excused): destruction of subject matter, non existence of state of things, death/incapacity, change of law, and outbreak of war. Situations where its not acceptable (performance not excused): difficulty of performance, commercial impossibility, failure of third party, failure of one of the objects, and strikes and lockouts

4. Breach of Contract: The breach may be actual (during performance) or anticipatory (before performance). The repudiation can be express or implied. The party injured has a right to damages, as well as is discharged by the contract.

5. Operation of Law: The contract may be discharged by the occurrence of death, merger, insolvency, unauthorised alteration, and when rights and liabilities devolve on the same party (eg. as in case of a bill of exchange in the hands of the acceptor, the other parties are discharged).

6. Lapse of Time: A contract may be discharged due to lapse of time. This is governed by the Limitation Act 1963. eg. if the creditor does not file suit for recovery within three years, then the debt becomes time barred and irrecoverable.