Discharge of Contracts

FORMATION OF CONTRACT: Section  – 10 of the Indian Contracts Act, 1872 “All agreements

are contracts, If  they  they are - made by the free consent of the parties - competent to contract c onsideration tion and - for a lawful considera - with a lawful object And, are not hereby expressly declared to be void.”

Discharge or Termination of Contract The formation of Contract gives rise to rights and obligations for the contracting parties. A Contract is a legal bond (vinculum juris) and it binds the parties to it.

Then, how long they continue to be, so legally bound? May be for - a few minutes, or hours; or - a few days or months; or

- a year or a few years; or - unto the death of one of the parties to it.

One day or the other, the contract must be put to an end . When such rights and obligations come to an end , or when the parties get out of the legal bond  –

the contract is said to be discharged / terminated .

Modes of Discharge or Termination of Contract. A contract may be discharged  or terminated - by Performance [Sec - 37 and 38] - by Impossibility of Performance [Sec – 56] - by Agreement [Sec –62 and 63 r/w 39, 63 & 64 ] - Novation, - Rescission, or - Alteration. - by Operation of Law - by Laps of Time, and - by Breach of Contract - Anticipatory Breach - Current Breach.

Discharge or Termination of Contract by Operation of law A Contract may be discharged/terminated by operation of law in the following cases: - by death of Promisor [Sec – 37] - by insolvency - by merger - by rights & liabilities becoming vested in the same person - by material alteration of a Negotiable Instrument - by notice within 6 months of attaining the age of majority under Partnership Act.

Breach of Contract. A Contract comes to an end , when any party to it - refuses to perform its part of obligation (s).  If

such refusal occurs before due date of - fulfillment of its promise or - performance of its obligations  – it is known as Anticipatory Breach.   If such refusal occurs  – at the time of performance; or  – during the course of performance – it is called Current Breach.

Remedies for Breach of Contract A Breach of Contract entitles the aggrieved party: - to rescind the contract and also - to sue the defaulting party for damages. The aggrieved party may take other remedies available to it under Specific Relief Act, such as - Specific Performance of the contract, or - request for issue of Injunction Order… etc.,

Discharge or Termination of Contract by Laps of Time Every Contract mentions the time during which it should be performed.

If no time is mentioned, it should be performed within a reasonable time. What is a reasonable time depends upon each particular case. The laps of - time agreed, or - reasonable time 

discharges the Contract.

Applicability of Law of Limitation to Contracts. If a contract is not performed , the aggrieved party has a right to enforce its rights available under the contract. Law will come to the rescue of the aggrieved party  – only when it seeks legal remedy in time.  – Law will not support indolent and lazy who do not act in time. [vigil Antibus, non dormantibus, jura]  – So, the rights can be enforced at any time before it becomes barred by the Law of Limitation. Therefore, an action to enforce rights available under a contract must be taken within 3 years of - Due date of performance, or - Date of Breach  – in India.