What are the ways in which a Contract can be Discharged?

A contract may be discharged in any of the following ways : 

  1. By performance.
  2. By tender of performance
  3. By mutual consent
  4. By subsequent impossibility
  5. By operation of law, and
  6. By breach.

By performance: A party to a contract is said to have actually performed his promise when he has fulfilled all his obligations under the contract. When both the parties have performed their respective promises, a contract is said to have been actually performed. Actual performance brings the contract to an end.

By tender of Performance: Section 37 provides that the parties to a contract must either perform or offer to perform their respective promises. The offer to perform is called tender of performance. If the promisee does not accept performance, the promisor is not responsible for non-performance, nor does he thereby lose his rights under the contract. Thus, a tender of a performance is equivalent to adtual performance.

Essentials of a valid tender

  • It must be unconditional.
  • It must be made at proper time and place.
  • It must be of the whole obligation contracted for and not only of the part.
  • If the tender relates to delivery of goods, it must give a reasonable opportunity to the promisee for inspection of goods.
  • It must be made by a person who is in a position and is willing to perform the promise.
  • It must be made to the proper person.
  • If there are several joint promisees, an offer to anyone of them is a valid tender.

By Mutual Consent: If the parties to a contract agree to substitute a new contract for it, or to rescind, it or alter it, the original contract is discharged.

By Subsequent Impossibility: In some cases it may so happen that the performance of a contract may become impossible subsequent to the formation of a contract. This is called subsequent impossibility of performance. In such cases the parties are discharged from further performance. Section 56 provides in this regard: ‘A contract to do an act which after the contract is made, becomes impossible or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

The contract becomes void on the ground of subsequent impossibility only if the following conditions are satisfied:

  • The act should have become impossible.
  • The impossibility should have been caused by circumstances beyond the control of the parties.
  • The impossibility should not be the result of the act of the parties.

A contract is deemed to have become impossible of performance and thus void under the following circumstances:

  • Destruction of the subject -matter of the contract for no fault of the promisor.
  • By the death or disablement of the promisor, where personal execution by him was necessary.
  • By the subsequent legislation forbidding the performance.
  • By declaration of war with the country whose resident the contract was made.
  • Non-existence or non-occurance of particular stable of thing.

Example: X and Y contract to marry each other. Before the time fixed for the marrige, X goes mad. The contract becomes void.

Exceptions: Under the following cases a contract is not discharged on the ground of supervening impossibility.

  • Difficulty of performance: Sometimes the performance becomes difficult. In such cases the parties are not discharged from performance on account of certain obstacles to execution of the contract.
  • Commercial hardship: A party to a contract cannot be discharged from performing it simply on the ground that it is unprofitable for him to perform the contract.
  • Impossibility due to default of the third party: The doctrine of subsequent impossibility does not apply to cases where a contract could not be performed due to the default of a third person on whose word the promisor relied.
  • Strikes, lockouts and civil disturbances: Strikes, lockouts and civil disturbances do not discharge the contract unless the parties had specifically agreed in this regard at the time of entering into a contract.
  • Failure of one of the objects: Sometimes a contract is entered into for achieving more than one object. In such cases if one of the objects fails, the contract is not discharged.

Discharge by operation of law: A contract terminates by operation of law in the following cases.

  • By the death of the promisor in case involving personal skill or ability.
  • By insolvency of the promisor.
  • Sometimes a person enters into a contract by which he gets certain rights which are superior to some rights possessed by him under a contract already entered into by him. In such cases the inferior rights of a person merge into his superior rights. On merger, the inferior rights vanish and that contract is discharged.
  • By the unauthorized. alteration of terms of written document.

Discharge by breach of contract: Breach of contract by a party thereto is also a method of discharge of contract, because breach of contract also brings to an end the obligations created by a contract on the part of each of the parties. Breach of contract may be of two kinds:

  • Anticipatory breach, and
  • Actual breach.
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