Discharge of Contract
Discharge of contract refers to the way in which it comes to an end. The various modes of discharge of contract or the different ways are as follows:
-
Discharge by performance
When the respective parties of the contract perform their shares of the promises, it is said to be the contract is discharged. It is called as natural mode of discharge.
Performance may be:
- Actual Performance: Under the contract, when all the parties to a contract do what they had agreed for, it is known as actual performance.
- Attempted Performance(tender or offer of performance): When the promisor attempts to perform his promise, the promisee refuses to accept the same, it is known as tender or attempted performance.
- Discharge by agreement or consent
Section 62 of the Indian contract, 1872 provides that “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” under the heading- Effect of novation, rescission and alteration of contract[2].
There are six types through which discharge of contract through agreement or consent could take place are mentioned below:
- Novation
When the parties to a contract agree to substitute the existing contract with a new contract, that is called novation[3].
In the well known case of Scarf v. Jardine[4], the meaning and effect of novation are explained by Lord Selborne.
Hence novation is of two kinds, namely:
- A novation involving change of parties.
- A novation involving substitution of a new contract in place of the old.
- Alteration
When one or more of the terms of the contract is/are altered by mutual consent of the parties to the contract, is called as alteration of a contract[5].In the case of United India Insurance Co. Ltd v. M.K.J. Corporation[6], it was held that even in good faith also in terms of the contract, no material alteration can be made by a party without the consent of the other.
- Rescission
When all or some of the terms of the contract are canceled, that is known as rescission of a contract.
- Remission
Section 63 of the Indian Contract Act, 1872 talks about the discharge of a contract by remission. It means the acceptance of lesser sum than what was due from the promisor or acceptance of a lesser fulfillment of the promise made.
- Waiver
Under an agreement, when an individual surrendering a few or the majority of their legitimate rights, it is known as waiver. The Supreme Court has already laid down that waiver is the abandonment of a right which normally everybody is at liberty to waive[8].
- Merger
When an inferior right accruing to a party under contract merges into a superior right accruing to the same party under a new contract[9].
- Discharge by impossibility of performance
- Initial Impossibility: As per section 56 of the Indian Contract Act, 1872 “An agreement to do impossible act is void ab-initio.” It means agreement which is obviously impossible cannot be binding[10].
- Subsequent Impossibility: A contract sometimes becomes impossible or unlawful and as a result void when capable to be performed after formation.
- Discharge by lapse of time
Specified period for performance of a contract prescribed by The Limitation Act, 1963. If the contract is not performed and no legal action is taken by the promisee within the period of limitation, the contract is discharged and he is deprived of his remedy at law.
- Discharge by breach of a contract
Breach of contract means failure to perform contractual obligation by either of the parties without any lawful excuse, the contract discharged because it is a ground for discharge of a contract.
