DISCHARGE OF CONTRACT

When such circumstances arise that it brings the whole contract to an end, it is known as the discharge of a contract. After a contract is discharged, all the parties are freed from the obligations under the contract. A contract is discharged because of a few possibilities out of which the most common one is the completion of the contract. It means that after the parties of the contract have done their part, the contract is over and their liability under the contract comes to an end which is known as discharge by performance. Another important possibility in which a contract can be discharged is that if there is a breach of contract. It means that if one party doesn’t perform the duty which it was supposed to perform then there is a breach of contract and the other part under the contract is automatically freed from all the terms and conditions of the contract and also they have the right to sue the other party that breached the contract. Breach of contract is actually of two types. One is the actual breach of contract which means the non-performance of the contract on the due date of the contract and the other type is Anticipatory breach of contract. This means that the contract is breached even before the due date of the contract. In simple terms, when a party anticipates beforehand only that there would be a non-performance of this contract, then also the contract is terminated and it is called an anticipatory breach of contract. Under this condition, the other party has the option to sue the party that breached the contract on the very day that the contract was breached, it means that the other party doesn’t have to wait for the actual due date of the contract to file a suit.

Impossibility of performance of a contract is another reason for the discharge of a contract. Impossibility of a contract is also further categorized under section 56. This includes the impossibility which is there during the making of the contract, and the other one is the impossibility which arises thereafter due to some supervening events. There is a kind of excuse from the performance of the contract if the reason for the non-performance is “impossibility of performance”, which is known as the doctrine of frustration under section 56 of the Indian Contract Act, 1872. There is also a provision if there is a situation where one party has made the payment or an advance payment for the contract even before its due date and there is a breach of contract, the party who has received the payment is bound to pay back the entire amount to the party that paid him earlier. This doesn’t mean that the party who breached the contract is also liable to pay or compensate for the anticipated profits that the other party was about to make after fulfilment of that breached contract.

One last reason for discharging of a contract could be by agreement and novation. This means that a contract is discharged with the agreement of both the parties but because of a cause. That is why the term novation has been used. Novation is the substituting of an existing contract with a new one which means that all the terms and conditions of the contract are new and both the parties are bound by those new terms and conditions of the new contract and the old contract is automatically discharged.