Indian Contract Act 1872: Discharge of Contract

When the rights and obligations arising out of a contract are extinguished, the contract is said to be discharged or terminated. A contract may be discharged in any of the following ways:

1. By Performance - actual or attempted.
2. By Mutual Consent or Agreement.
3. By subsequent or supervening impossibility or illegality.
4. By lapse of time.
5. By Operation of Law.
6. By Breach of Contract.

1. Discharge by Performance:

 When both the parties fulfil the rights and obligations arising out of the contract within the prescribed time and manner, then the contract is discharged by performance. Performance may be:

• Actual Performance: When all the parties to a contract do what they had agreed for under the contract.
• Attempted Performance: When the promisor attempts to perform his promise, the promisee refuses to accept it. In such cases, it is called attempted performance or tender. 

2. Discharge by Mutual Consent or Agreement

Since a Contract is created by means of an agreement, it may also be discharged by another agreement between the same parties.

 

3. Discharge by Subsequent or Supervening Impossibility or Illegality

A Contract which is entered into to perform something that is obviously impossible, e.g.,  an agreement to discover treasure by magic, because, in such a casevthere is no contract to terminate, it being an agreement void ab-initio. 

However, the impossibility might also arise later due to:  

•  Destruction of subject-matter.
• Failure of ultimate purpose.
• Death or personal incapacity of the promisor.
• Change of Law.
• Declaration of War. 

4. Discharge by Lapse of Time

The Limitation Act lays down that in case of breach of a contract legal action should be taken within a specified period, called the period of limitation, otherwise, the promisee is debarred from instituting a suit in a court of law and the contract stands discharged. Thus in certain circumstances lapse of time may also discharge a contract.

5. Discharge by Operation of Law

A contract can be discharged by operation of law which includes insolvency or death of the promisor.

6. Discharge by Breach of Contract

If a party to a contract fails to perform his obligation according to the time and place specified, then he is said to have committed a Breach of Contract.
Breach of Contract may be of two kinds:

1. Anticipatory Breach: An Anticipatory breach of contract is a breach of contract occurring before the time fixed for performance has arrived.
2. Actual Breach: Actual breach occurs when a party fails to perform his obligations upon the date fixed for performance by the contract.