How do you explain the various modes of discharge of contract?
Discharge of contract
Q. Describe the various modes in which a contract may be discharged. (2002)
A contract is said to be discharged when the rights and obligation created by it come to end. The contract act 1872 provides various ways in which a contract may be discharge or terminated.
2. Modes of discharge of contract:
Following are different modes in which a contract may be discharged.
Performance is a common mode of discharge of a contract. It is a common of discharge when the parties to a contract perform their share of promises the contract is discharged.
(a) Types of performance:
Performance may be of two types.
(i) Actual performance:
When each party to a contract fulfill the obligations arising under the contract according to the terms and conditions of the contract, it is called actual performance.
(ii) Offer of performance:
An offer to perform is know as Tender' or 'Offer' of performance when the promisor offers to perform the obligation but the other party refuses accept, the offer is equivalent to performance.
Essentials of a valid offer of performance.
(i) It must be unconditional .
(ii) It must be made at proper time.
(iii) It must be made at proper place.
(iv) It must be made by a person who is able to perform the promise.
(v) It must be made to the promise or his agent.
(vi) An offer, of performance made to stranger is invalid.
(vii) In case of tender of money exact amount should be tendered.
(II) By agreement:
A contract can also be discharged by the fresh agreement between the parties.
(a) Ways to terminate the contract:
Following are different ways to discharge a contract by agreement.
When the parties to the contract agree to substitute a new contract for a contract, that is called Novation.
Kinds of Novation:
(a) A Novation involving the change of parties.
(b) A Novation involving substitution of a new contract in the place of old contract.
When all or some of the terms of contract are cancelled the contract is said to be rescined.
Modes of rescission:
Rescission may occur.
(i) By mutual consent of the parties.
(ii) When are party fails to reform his contractual obligation, the other party may rescind the contract.
When one or more of the contract is altered by actual consent of the parties, the contract is said to be altered.
(iv) Release of waiver:
Waiver means the intentional abandonment of a right, which a person is entitled to under a contract.
Remission of performance means that a promise can discharge the promisor also without a new agreement but not only without consideration. Creditors may accept lesser amount than what is due in discharge of the whole debt.
It takes place when an inferior right accuring under a contract merger into a superior right accuring to the same party or some other contract.
(III) By impossibility:
Impossibility discharge the parties. If the act becomes impossible after the formation of contract, the contract is rendered void.
(a) Categories of impossibility:
Following are categories of impossibility.
(i) Initial impossibility:
Initial impossibility is that which is known or unknown to the parties.
(ii) Subsequent impossibility:
Some times a contract, is capable of being performed when entered into. But some subsequent event renders the performance impossible.
(b) Factors causing impossibility of performance of contract:
The following are the factors causing impossible of the performance of the contract.
- (i) Destruction of subject matter.
- (ii) Failure of ultimate purpose
- (iii) Death
- (iv) Personal incapacity
- (v) Change of law
- (vi) Declaration of war
- (IV) Discharge by laps of time:
A contract may be discharge by laps of time. The contract should be performed with in a reasonable time. If a contract is not discharge with in a specified time, the contract is discharued.
(V) By operation of law:
A contract may be discharged by operation of law.
Ways of termination:
Following are different ways of discharge under operation of law.
Where the court declares a person as insolvent, the rights and liabilities are transferred to officer known as receiver so contract is discharged.
(b) By unauthorized:
If the terms of the contract, written on a document are materially altered by one party, without the consent of the other party the contract is discharged and can not be enforced.
(VI) By breach of contract:
A contract may be discharged by breach if one of the parties to a contract break the promise, the injured party has not only a right damages but it is also discharge from performing his part of the contract.
(i) Actual breach:
It occurs when a party fails to perform a contract, where performance is due.
(ii) Anticipatory breach:
An anticipatory breach contract occurs before the time fixed for performance has arrived. It may happed in two ways.
(iii) Express breach:
In express breach a party to contract communicates to the other party, his intention not be perform the contract on his part.
(iv) Implied breach:
In implied breach party to the contract does not act. Which makes the performance of the contract impossible,
To conclusion it can be said that, when the rights and obligations arising out of a contract are extinguished the contract is said to be discharged. The contractual tie may be loosend and contract may be terminated under different modes under contract act.