What is Contract Discharge?
A contract is a legally binding document between two or more parties. It creates duties and obligations towards respective parties. Some criteria make a contract valid. The contract gets discharged when those obligation gets carried away or come to an end. When one party breaches the primary obligation of the contract, there arises remedy. The remedy is the legal compensation for loss faced by contracting parties due to such breach. Discharge acts as a defense against such a remedy. Contract discharge and contract termination lie beside a thin line. Discharge of contract occurs through various circumstances. In case of fulfillment of terms, the contract gets discharged. There are cases when non-performance can also bring a contract discharge.
Modes of Contract Discharge
Discharge of contract occurs in different ways, and such discharge puts an end to the existence of the contract and the contractual relation between parties. Discharge occurs through breach of contract, the performance of parties, mutual consent, or agreement.
In the case of mutual consent or agreement, it depends on the parties’ motive to carry out the contract’s obligations. If the parties end their obligation under that contract through a mutual agreement or consent, it gets discharged.
When a contract gets substituted by a new contract.
When parties willfully alternate or remove specific terms of the contract.
When a lesser payment of debt gets accepted in case of debt amount as mentioned under contract.
In the case of the lease, when the lessee buys the leased property, such lease contracts get discharged.
The discharge also occurs through a breach. Breach of contract is a one-way process, where one party fails in carrying out his/her part of the obligation raised out of contract. Breach by one party discharges the other parties to contract, and it makes the contract null.
The performance of parties plays a vital role in discharging the contract. It can occur through performing obligations, non-performance, and satisfaction from the performance. There are condition precedents and conditions after the contract that need to be performed by the parties. Where a valid impossibility occurs to perform the obligation under a contract, discharge occurs.
There are cases when the contract itself mentions a specific period to execute the performance, and if one party fails to do so, it can be treated as the discharge of the contract. For example, A promises to give his/her land to B on payment of 6 lakh, and C owes 6 lakh to B on a contract. A new contract was created between A and C, where C agrees to pay A 6 lakh on behalf of B. In this case, the old contracts get discharged.
Difference Between Discharge and Termination
The contract binds the parties to carry out the acts they are supposed to do under the terms mentioned. However, the complications and hectic procedures make the contract terms null or satisfied in the business sector. There are various ways of nullifying a contract. Contract discharge and termination acts differently. If contract discharge obligations are performed, merely performed, or there is a valid impossibility of performance. While in case of termination, the terms under the contract were breached purposefully. A discharge does not end through a null or void contract where termination of the contract does. Parties can choose to terminate the contract alike in case of discharge.
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