Discharge of contract 1

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
comes to an end.

A contract may be discharged
 By Performance
 By Agreement or Consent
 By Impossibility
 By Lapse of Time
 By Operation of Law
 By Breach of Contract

Since a contract is created by means of
an agreement, it may also be
discharged by another agreement
between the same parties. Sections 62
and 63 deal with this subject and
provide for the following methods of
discharging a contract by mutual
agreement.

Section 62 of the Act 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." Novation creates a new
contract. It discharges and extinguishes
the original contract. The new contract
may be between the same parties, or
between them and a stranger.

For example, X borrows Rs. 5,000 and
writes a promissory note in favor of Y for 3
months. After 3 months, X goes to Y and
expresses his inability to pay the amount. X
writes a new promissory note for Rs. 5,000,
the old promissory note is discharged by
the new one. This novation is between the
old parties i.e. X and Y.

When all or some of the terms of the contract are
cancelled, it is called the rescission of the contract.
 Rescission may take place by mutual consent of
the parties.
 Similarly where one party has committed a breach
of contract, the aggrieved party can rescind the
contract.
 In case of a voidable contract, the party whose
consent was not free can, if he so decides, rescind
the contract.

A induces B to enter into a contract
by fraud. The contract is voidable at
the option of B. He may, therefore,
rescind the contract.

When one or more of the terms of contract are
altered by mutual consent of all of the parties to
the contract, it is said that a contract has been
altered. In alteration, only the terms of the contract
are charged without affecting any change in the
parties to the contract. When any alteration is
made to the contract with the consent of the
parties the original contract is discharged and
need not be performed.

Remission means acceptance of a
lesser performance that what was
actually due under the contract.
Example : In the case of life sentence
remission is provided to prisoner for
his good behavior in prisoner.

Discharge of Contract by Performance
When the parties to a contract perform their
respective promises, the contract is said to have
been performed. This is the normal and natural
mode of discharging a contract. When performance
is proper and complete on either side, the parties
become free from any further liability. If only one
party performs what he promised, he alone gets a
valid discharge, and he acquires a right of action
against the other for non-performance.

Performance may be.
1. Actual performance : The contract is said to have
been performed, if both the parties to the contract
have performed their respective promises.
2. Offer to perform or tender : Tender is an offer to
perform the obligation under the contract. When one
party offers to perform its part of the promise and the
other party refuses to accept the performance, the
first party is discharged from its obligation provided
the offer or tender to perform the contract was valid.

The limitation act provides that a contract
should be performed within a specified
period i.e. period of limitation. If the
contract is not performed, and if no legal
action is taken by the promisee within the
period of limitation, he is deprived of his
remedy at law. In other words, the contract
in such a case is terminated.

A contract terminates by operation of law in the following
cases:
A) Insolvency:
The insolvency Act provides for discharge of contracts
under particular circumstances. Where the court
declares a person as insolvent, the rights and duties of
such person are transferred to the officer of court, know
as Official Receiver, After the order of the court such
person is discharge from his liabilities incurred before
his insolvency.
Example:
A promises to sell his car to B for Rs. 2 lac. Before the
performance of the contract A is declared insolvent by
court. The contract between A, & B is discharged.

Merger takes place when an inferior right
available to a party merges into a superior right
available to the same party under, some other
contract. As a result of merger the former
contract stands discharged automatically.
Example: When ad-hock doctor is made
permanent doctor the contract of ad-hock
doctorship is discharged by merger.

 Impossibility of performance results is the
discharge of the contract . Agreements
which are impossible in itself are void
because law does not compel the
impossible.
 For example : a promise by A that he will
raise a mango tree in 1 hour in B garden by
invoking some mantras is void.

 1.Destruction of the subject –matter
2.Death or personal incapacity .
3.Change of law.
4.Declaration of war.

 A breach of contract occurs when the
agreement is not kept ,because one party to
the contract does not fulfill their obligations
according to its terms.

 Actual Breach: An actual breach of contract
happens when a party is unable to fulfill his or her
contractual obligations by the deadline for
performance or during the course of performance.
 Anticipatory Breach: Contracts generally have set
dates on which “performance” or fulfillment of the
contracts obligations are required.
 If one of the parties commits a breach prior to that
time, then they have committed an anticipatory
breach . If this occurs, the non-breaching party may
immediately consider the contract breached, and
take legal action.

 A mercantile agent is a person who is
appointed by those in business to act on
their behalf or to represent them in dealing
with others persons.

 Factor
 Broker
 Auctioneer
 Banker

 As per section 2 of sale of goods act, there is
an agent known as Mercantile Agent . As the
name suggest he is the one who work for a
business of the principal. A Factor is one
type of a mercantile agent who sells goods
on behalf of his principal.

 A broker is a special type of mercantile agent
who acts as a middleman between the buyer
and seller.

 Auction is usually a public sale of goods
made in the highest of several bidders .An
auctioneer is a mercantile agent who is
appointed to sell goods on behalf of principal
,compensated in terms of commission.

 The relationship between a banker and a
customer is either that of debtor and creditor
or as a agent or principal.

Discharge of contract 1

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