Discharge of contract

The discharge of a contract means that the obligations of the contract come to an end. When discharge occurs, all duties which arose under the contract are terminated. In other words, a contract is discharged when the rights and obligations created by it comes to an end. The main difference between discharge and termination of a contract is the conditions under which a contractual relationship ends.

Discharge by performance

Discharge by performance takes place when the parties to the contract their obligations arising under the contract within the time and in the manner prescribed. In such case the parties are discharged and the contract comes to an end. Non-performance of the required duties and obligation by either or both parties leads to the termination of a contract. If a singer comes to the concert and performs, then the singer and organizer discharge the contract after the performance. If the singer does not come and does not want to perform, the organizer may terminate the contract. Performance of a contract is the most usual mode of its discharge.

Discharge by agreement

Discharge by agreement or consent means that both parties to a contract may agree to terminate the contract under certain conditions which are defined in the contract. Parties may agree to discharge the contract as soon as some obligations are met or under circumstances which are not favorable to either party. If some frustrating conditions, for examle government regulations affect the agreement, both parties may agree to terminate the contract. The main rule of law is that the thing may be destroyed in the same manner in which it is constituted. It means that the obligation of the contract may be discharged by an agreement which may be expressed or implied.

Discharge by operation of law

A contract may be discharged by operation of law which takes place:

• by death: if contracts involves some personal skill or ability of the promisor, the contract is discharged/terminated due to death of the promisor,
• by insolvency: when a person is considered insolvent, then this person is discharged from all liabilities iwhich ncurred prior to his/her adjudication.

Discharge by breach of contract

Discharge by breach of contract takes place when one party to the contract fails to discharge his/her obligations under the contract or does something that contradicts the contract. Breach of contract may also take place if one party makes it impossible for the other to discharge his/her obligation and duties as per the contract. Parties may terminate a contract if a court finds that the breach is material and caused damages and loss to the affected party.

Examples of Discharge of contract

• Performance: When the parties involved in the contract complete performance as agreed upon, the contract is discharged. This means that when both parties fulfill the obligations outlined in the contract, the contract is no longer legally binding.
• Agreement: Contractual obligations can be discharged by mutual agreement of both parties. This means that the parties in the contract can agree to terminate the contract and release each other from any further obligations.
• Impossibility: When a contract cannot be fulfilled due to unforeseen circumstances or events that make performance impossible, the contract can be discharged. For example, if a contract requires someone to deliver goods to an address that does not exist, the contract can be discharged.
• Breach of Contract: If one of the parties in the contract fails to fulfill the obligations outlined in the contract, the contract can be discharged due to a breach of contract. This means that the other party is no longer obligated to fulfill its obligations under the contract.
• Frustration: If an event or circumstance arises which was not anticipated by either of the parties in the contract and which renders performance impossible, the contract can be discharged on the grounds of frustration. This can include events such as a change in the law or natural disaster.
• Novation: A novation is the process of replacing one party in a contract with another. This can be done with the agreement of both parties involved in the contract and can be used to discharge the original contract and replace it with a new one.

Advantages of Discharge of contract

A discharge of a contract has several advantages. These include:

• Increased flexibility: Discharge of a contract allows parties to renegotiate the terms of the contract and make modifications that better suit their current needs. This is beneficial to both parties as it allows them to adjust the terms of the contract to fit their current situation.
• Reduced legal costs: Discharging a contract eliminates the need for costly legal proceedings which would otherwise be necessary to terminate the contract. This can save both parties money in the long run.
• Clarity: Discharge of a contract provides clarity to both parties regarding the end of their contractual arrangement. This allows both parties to move on with their lives without any confusion or ambiguity.
• Protection from liability: Discharging a contract eliminates the potential for one party to be held liable for any breach of the contract. This can provide both parties with peace of mind that their interests are protected.

Limitations of Discharge of contract

There are several limitations to the discharge of a contract:

• Breach of Contract: If either party breaches the terms of the contract, the contract cannot be discharged. The non-breaching party can claim damages or seek other remedies.
• Impossibility of Performance: If performance of the contract becomes impossible due to an act of God or some other unforeseen event, the contract may not be discharged.
• Waiver of Rights: A party may waive certain rights under the contract, meaning that the contract is still in effect but the rights have been waived.
• Statute of Limitations: In some jurisdictions, a contract may be discharged if it is not performed within a certain amount of time.
• Incapacity of a Party: If one of the parties cannot fulfill their obligations due to incapacity, the contract may be discharged.
• Change in Circumstances: If the circumstances of the parties have substantially changed, the contract may be discharged.
• Mutual Agreement: The contract may be discharged if both parties agree to end the contract.

Other approaches related to Discharge of contract

There are several approaches related to the Discharge of contract. They are:

• Novation: This refers to the process of replacing an existing contract with a new one. This usually occurs when one of the parties wishes to change the terms of the contract.
• Alteration: This is the process of making changes to an existing contract, such as changing the terms or conditions.
• Frustration: This occurs when a party is unable to fulfill their contractual obligations due to an unforeseen event or circumstance that was outside of their control.
• Rescission: This refers to the cancellation of a contract by mutual agreement of the parties.
• Merger: This occurs when two parties agree to combine their respective contracts into one.
• Set-off: This is a legal process in which one party cancels out the debt owed to another party with a debt owed by the other party.
• Accord and Satisfaction: This refers to a process in which one party agrees to accept a lesser amount of payment than what was originally agreed upon.

In summary, there are several approaches related to the Discharge of contract, such as novation, alteration, frustration, rescission, merger, set-off, and accord and satisfaction. Each approach has different implications for the parties involved and should be considered carefully.

Footnotes

Discharge of contract — recommended articles

Hold over tenant — Exculpatory Clause — Deed of surrender — Affirmative Covenant — Hammer clause — Tenancy at Will — Tenancy At Sufferance — Assignment of claims — Assignment clause

References

• Barty S.; Carnell P, 2010, What Constitutes Reasonable Notice to Terminate a Contract?, Credit Control, Vol. 31 Issue 2, p13-15.
• Carter J.W., Courtney W., Tolhurst G., 2018, Two Models for Discharge of a Contract by Repudiation, Cambridge Law Journal, vol. 77(1), p. 97-123
• Jones L., 2015, Introduction to Business Law Third Edition, Oxford University Press

Author: Sylwia Kotysz

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