What is Discharge of Contract in business law? Discharge of contract means to get free from the obligation and rights created by law under a contract.
When two parties enter into an agreement. One party has to do something or to perform an act for the other party.
The performance of such act in an obligation for one party and is a right for another party for whom such act or thing is to be done. So, discharge of contract means to put to an end all the obligations and rights created by the contract.
In short, discharge of contract means to get free from the duties and obligation imposed by law through a contract.
See Also: Rules for Performance of Contract
Illustration: A agrees to sell 1000 units of his product to B for $10 per unit. B pays $10,000 to A and A hands over 1000 units to B. Now both A and B has been discharged from his part of contract.
Modes of Discharge of Contract
The following are the various modes of discharge of contract:
By Performance
When all the parties to a contract perform their part of obligation according to the way prescribed or required by law, the contract is said to be discharged by performance.
See Also: What is Valid Contract
Illustration: A agrees to sell his horse to` B for $50000. Under this contract when B will pay $50,000 to A and A will hand over horse to B, the contract will be discharged by performance.
By Mutual Consent
When the parties to a contract by mutual consent agree to substitute a new contract for the old one or resend it or alter it.
The original Contract needs not be performed and parties are discharged from their Part of obligations. This discharge of contract may be in any one of the following ways:
Novation
When the parties to a contract substitute a new contract for the old one is called novation of a contract, under novation parties to the contract are discharged from the obligation of the old contract.
Illustration: A owes $1000 to B under a contract, by mutual consent both the parties agree that A will provide his goods to B for $1000.
It will be a new contract which will cancel the old contract. So, the parties will be discharged from old contact.
Alteration
When anyone or more condition of the contract is changed, it is called alteration of a contract. When a contract is altered with mutual consent of the parties, the parties are discharged from obligation of the old.
Illustration: A enters into a contract with B that he will deliver 1000 units of his product at B’s shop.
Later on, A and B with their mutual consent decide that B will receive delivery from A’s factory. Now A is discharged to deliver the goods at B’s shop.
Rescission
Rescission means cancellation of the contract. When the contracting parties cancel their whole old contract with their consent or cancel any one or more terms of the old contract.
See Also: Examples of Quasi Contract
It is known as rescission of the contract and parties are discharged from that part (term) of the contract which has been rescinded.
Sometimes, one of the contracting parties does not perform his part of the contract, the other party has legal right to rescind the contract.
Illustration: A promises to deliver 1000 units of his product to B at Bs shops, later on, B rescind the condition to deliver the goods at B’s shop and agrees to get the goods from A’s shop.
Now A is discharged to deliver the goods to B, at B’s shop by rescission of contract.
Remission
Remission means to leave wholly or a part of the performance of the contract. Sometimes the promisee himself dispenses or remits the performance of the contract or gets satisfaction other than its performance, it is called remission of a contract.
Illustration: A agreed to deliver 1000 units of his product to B. later on prices increase in the market and B accepts only 800 units in full satisfaction of the contract. Now A is discharged from liability by remission.
By waiver
Sometimes the promisee himself leaves his rights to the contract with his own free consent and the promisor is released from his part of obligations. It is called discharged of a contract by wavier.
Illustration: A owes $2000 to B. B with his free consent decides not to get this amount from A. A will be discharged from the liability by waiver.
By lapse of time
A contract must be performed within a prescribed time and manner. If it is not so performed, the injured party can take action against the defaulter party within the time permitted by The Limitation Act for the breach of contract.
See Also: Examples of Contingent Contract
In case of his failure to do so, discharge of contract occurs by lapse of time.
Example: A creditor is allowed to sue for nonpayment of debt within three years. After this period, he cannot sue for the recovery of the debt due to a lapse of time.
By breach of Contract
When any of the contracting party fails to perform his part of the obligation, it is said to be a breach of the contract. In case of break of contract.
The injured party has not only the right to claim for damages but is also discharged from his part of the obligation.
Illustration: X promises to pay $1000 to Y Within 10 days and Y promises deliver 10000 units of his product With In 20 days, X fails to make payment Within 10 days.
Now Y is discharged from his part of obligation due to X’s breach of contract.
By Operation of Law
A contract may be discharged by operation of law in any of the following ways.
By Death
When the performance of the contract depends on the skills and qualifications of the promisor and he dies, the representatives of the promisor are discharged from obligation.
Illustration: A painter promises to paint a picture for B. Before painting picture, A dies, now the legal representatives of A will be discharged this contract.
By unauthorized Alteration
When a written contract is altered in its material part by any contracting party without the consent of the other party, the other will get a discharge from his part of the obligation.
See Also: Examples of Void Contract
Illustration: A issues a cheque to B for $10000. But changes the amount makes it as $100000. Now the cheque is a dishonor and A discharge from payment due to alteration of the cheque.
By Insolvency
When any one of the contracting parties is declared as insolvent court of law, the insolvent party is released from all his debts in excess his property,
Illustration: A has to pay $50000 to different persons and he is declared insolvent only $40000 are available in his property. A discharged from his debt in excess of $10000.
By Merger
When a smaller contract merged into a larger contract (as the higher security ‘s accepted at the place of a lower security), the smaller contract to discharged by law.
Illustration: A promises to sell 500 units of his product to B for $10 each unit. Later on, they extend the contract up to 1000 units So both the parties Will be discharged from the first contract of 600 units
By Impossibility
When the performance of the contract is impossible, the contract is said to be void and all the contacting parties are discharged from their part of an obligation.
Illustration: A promises to pay $1000 to B if he puts alive a dead body. As the performance of such contact is impossible, so parties Will be discharged from their obligations without the performance of the contact
Void Contact
When contact is declared by law as void, all the contracting parties of such contract are discharged from their part of obligations without the performance of such contract.
See Also: Examples of Assignment of Contract
Illustration: A contract by way of wager, a contract in restraint of trade, marriage or legal proceeding are void and parties are discharged with outperformance of such contacts
Voidable Contract
When the contract is voidable at the option of one party and such party selects not to perform the contract.
The other party is discharged from his part of obligation Without the performance of the contact.
Illustration: A threatens to kill B If he does not sell 1000 units of his product for $10 each B agrees to sell.
As the coercion has been applied and contact IS voidable at the option of B, so, later on, B refuses to perform the contract Now A will also be discharged to pay $10000 for the product.
