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Discharge of Contract

The document discusses 7 ways that a contract can be discharged or terminated: 1. By performance of contractual obligations by both parties. 2. By non-performance or breach of contract by one party, which relieves the other party of their obligations. 3. By agreement of both parties to terminate the contract. 4. By mutual rescission where both parties agree to cancel the original contract. 5. By novation where a third party replaces one of the original parties by agreement. 6. By operation of law due to factors such as statute of limitations, bankruptcy, or impossibility of performance. 7. By the promisee dispensing with or remitting the performance due

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125 views

Discharge of Contract

The document discusses 7 ways that a contract can be discharged or terminated: 1. By performance of contractual obligations by both parties. 2. By non-performance or breach of contract by one party, which relieves the other party of their obligations. 3. By agreement of both parties to terminate the contract. 4. By mutual rescission where both parties agree to cancel the original contract. 5. By novation where a third party replaces one of the original parties by agreement. 6. By operation of law due to factors such as statute of limitations, bankruptcy, or impossibility of performance. 7. By the promisee dispensing with or remitting the performance due

Uploaded by

Md. Rasel Patwary
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Handout: Discharge/Termination of Contract

Dr. Rana Parvez Sattar


Department of Law, IUB

What are the various ways a Contract can be


Discharge/Terminated?
1. Discharge by Performance

1.1 Discharge by performance: (Parties have fully performed their contractual obligations): Most
contracts are discharged by performance, which means that the parties do what they agreed to do.
When the time for performance is not stated in a contract, it must be performed within a reasonable
time. When the time is started, the court will allow additional time to perform unless something indicates
that time is of the essence, then-time for performance will be strictly enforced.

1.2 Discharge by non-performance: Nonperformance can also discharge contractual obligations. Not
every instance of nonperformance results in a breach of contract. Parties can agree to discharge a
contractual obligation by terms in the contracts, mutual rescission, waiver, novation accord and
satisfaction, and general release. Contractual obligation can also be discharged when it becomes
impossible to perform a contract. The “frustration-of- purpose” doctrine releases a party from a
contractual obligation when performing the obligation would be impractical and senseless. These
obligations can also be discharged by operation of law under principles of bankruptcy and the statute of
limitation. When contractual obligations terminate by agreement or by operation of law, no liability falls
to either party.

2. Discharge by Breach of Contract: A breach of contract relieves the injured party from
any obligation under the contract. Breach of contract also gives the injured party the right to ask a court
of law for a remedy, usually in the form of damages. Injured parties are required to mitigate their
damages when money will not be sufficient relief, the injured party may ask for specific performance or
for injunctive relief.

3. Discharge/Termination by Agreement: Any contract can be discharged by agreement


of the parties. the agreement can be contained in the original contract ,or the parties can form a new
contract for the express purpose of discharging the original contract (see Section 62).

(4) Discharge by Rescission: Rescission is the process in which the parties cancel the
contract and are returned to the positions they occupied prior to the contract’s formation. For mutual
rescission to take place, the parties must make another agreement that also satisfies the legal
requirements for a contract there must be an offer, an acceptance and consideration. If parties agree to
rescind the original contract, it will be a legal consideration for the second contact. Mutual rescission
can occur in this manner when the original contract is executory on both sides (see Section 62).

(5) Discharge by novation: The process of novation substitutes a third party for one of the
original parties. Essentially, the parties to the original contract and one or more new parties all get
together and agree to the substitution.
Requirements of novation:
-Existence of a previous, valid obligation
-Agreement by all of the parties to a new contract.
-The extinguishing of old obligation.
-A new, valid contract

(6) Termination/Discharge by operation of law: Under some circumstances,


contractual duties may be discharged or terminated by operation of law (such as, as per section 37,
where performance is dispensed with by the provisions of the Contract Act 1872 or any other law).
These circumstances include material alteration of the contract, application of the law of limitations,
bankruptcy, and impossibility of performance.

6.1 Contract alteration: To discourage parties from altering written contracts the law allows an
innocent party to be discharged when one party has martially altered a
written contract without the knowledge or consent of the other party.
6.2 Statutes of limitations: Statutes of limitations limit the period during which a party can sue on a
particular cause of action.
6.3 Bunkruptcy: A proceeding in bankruptcy attempts to allocate the debtor’s assets to the
creditors in a fair and equitable fashion.
6.4 Impossibility: After a contract has been made, performance may become impossible in
an objective sense. This is known as impossibility of performance and
may discharge the contract (impossibility renders the contract void under
section 56).]\

7. Dispensation with or Remittance of promise: As per section 63 of the Contract Act,


every promisee may dispense with or remit, wholly or in part, the
performance of the promise made to him.

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