In order to understand the discharge of a contract, one must first coherently grasp the meaning of a contract. A contract is an agreement that is enforceable by law.

CONTRACT = AGREEMENT + ENFORCEABLE BY LAW

The enforceability of the law is ensured only when the provided conditions for a contract are fulfilled by the parties. These conditions include an agreement between two parties, the parties must be competent, the existence of lawful consideration and object, free consent of the parties, and lastly the consideration must not be expressly declared void.

What is the discharge of a contract?

The discharge of a contract shall apply to the termination of contractual obligations. The contractual obligation refers to the rights and duties that the parties have agreed to enforce upon entering into the contract. When these contractual duties are quashed the discharge of a contract has occurred, the parties are no more obligated to abide by the contractual duties.

The discharge of a contract occurs under the following circumstances:-

Discharge by performance

Each party to a contract is obligated to fulfill its part of the obligations of the contract. After the parties have conducted their part of contractual duties, the contract comes to an end this is referred to as the discharge by performance. Under such discharge of the contract, the parties have no right to see the performance or have any obligations to perform meaning there can not exist any dispute.

Discharge by breach of contract

If a party with an obligation to execute a contract fails to do so or performs an act by which the execution of the contract becomes impossible or refuses to perform the obligations then there has been a breach of contract. In an event of a breach of contract by one of the parties, the other party shall be deprive of its responsibility to fulfill its part of the duty.

A breach of contract may be either: (i) actual, i.e. nonperformance of contact on the due date (ii) anticipatory, i.e., before the due date of performance. Example- X has to supply certain goods to on 2 April. On 2 April X does not supply the goods to Y. Then X has committed an actual breach of contract. But if X informs Y on 2 March that X won’t be able to perform then X has committed an anticipatory breach.

Discharge by impossibility of performance

Section 56 of the Indian Contract Act 1872, deals with discharge by the impossibility of performance. The first paragraph deals with the impossibility arising from void agreements. The second paragraph deals with the unenforceability of a contract when the act becomes (i) impossible (ii) for the reason of an event that the promisor could not prevent.

The initial impossibility occurs when the contractual obligations are impossible to perform the parties will never be able to fulfill their obligations to the contract hence making the contract void. The subsequent impossibility occurs due to the objective impossibility of performance, frustration of purpose, temporary impossibility, and commercial impracticability.

Discharge by agreement

Since a contract form by an agreement then the discharge of the contract can also occur by an agreement. Discharge by agreement arises when the existing contract abandoned or when the conditions of the existing contract amend when both parties agree to it.

NOVATION -The substitution of an existing contract by a new contract is called novation. This agreement may be between the same parties or different parties and thereby the existing contract discharge. Novation is of two types: (i) by change in terms of the contract (ii) by change in parties of the contract.

RESCISSION -The cancellation of all the terms of the contract or some terms of the contract is call rescission. When both the parties agree on rescission then the respective existing contractual obligations terminate.

ALTERATION – The altering of one or two terms of an existing contract after the agreement of the parties is called alteration. Alteration occurs between existing parties and only the terms are change.

WAIVER -when a party knowingly abandons its rights under the contract, its responsibilities shall release from the other party otherwise binding upon it. This call a waiver. Simply, surrendering or abandonment of contractual rights is called a waiver.

The doctrine of frustration

Under section 56 of the Indian Contract Act 1872, when the performance of contractual duties becomes impossible, the purpose in the minds of the parties is frustrate. When the performance turns impossible due to the following event, the promisor is excuse of the performance of the contract.

In the case of Taylor v. Caldwell^[1], it was held that when a contract is not positive and absolute, but subject to express or implied condition e.g., a particular thing shall continue to exist, then in such a case, if the thing ceases to exist, the performance of the contract is deemed to be impossible and thus the parties are excused from the performance of the contract. ^[2]

Discharge by operation of law

A contract is terminate by the operation of law by:-

INSOLVENCY OR BANKRUPTCY – If a person is try as insolvent then he is emancipate from all his liabilities and debt. The rights and the liabilities are further shift to an official receiver under the Provincial Insolvency Act. Thus, the insolvent is absolve of his obligations arising from previous contracts.

MERGER – It is the merger of a superior right into an inferior right. Meaning that a contract is terminate when an inferior right arises in a contract then it is further merge with a superior right arising to the same party.

Discharge by accord and satisfaction

The section 63 of the Indian Contract Act 1872, states that the parties must accept and agree to the performance that varies an amount from the original performance mentioned in the contract.

ACCORD – It is an executory contract to execute an action that will resemble the existing contractual obligation. It is an arrangement that suspends the initial contract but does not discharge it.

SATISFACTION – It is the fulfillment of the deal, which discharges the initial contractual obligation, is satisfaction.

Discharge by lapse of time

A contract can be discharge by time-lapse. If not apply during a given duration refer to as the “period of restriction”, the contract is discharge. For example: if the creditor does not file to recover his debt amount by the provided period of restriction, his remedy is debar. For different contracts, the limitation act, 1963 prescribes the limited duration or period of restriction.

Discharge by neglect

According to section 67 of the Indian Contract Act, if either the promisor neglects or refuses to provide the promisor. With appropriate facilities for the fulfillment of his pledge, the promisor excuses him from fulfilling his contractual obligations. The duty on the part of the promisor is not a precedent requirement for the promisor to perform his part, pursuant to section 67, he is no excuse.

Discharge by death

According to section 37 of the Indian Contract Act 1872. States that when the contact is personal in character and requires the existence. And abilities of the promisor if the promisor dies the discharge of the contract will occur. Example: Z holds a contract with an artist X to paint his portrait. X dies before painting the portrait, the contract discharge. X’s representative can not fulfill the performance of the contract neither can X perform the contractual obligation anymore.