When two parties enter into a contract, they are bound by the terms of the agreement. However, circumstances may arise that make it necessary for one or both parties to end the contract. This is where the concept of discharge of contract comes into play.
Discharge of contract means that the parties to a contract are released from their obligations under the agreement. There are several ways in which a contract can be discharged. Let`s take a closer look.
1. Performance
The most common way in which a contract is discharged is by performance. This means that both parties fulfill their obligations under the contract and the terms of the agreement are met. Once performance is complete, the contract is said to be discharged.
2. Mutual agreement
Another way in which a contract can be discharged is by mutual agreement. This occurs when both parties agree to end the contract before the terms have been fully performed. This may happen for various reasons, such as a change in circumstances or a disagreement over the terms of the agreement.
3. Breach
When one party fails to meet their obligations under the contract, it is known as a breach. In such cases, the other party may choose to terminate the contract and seek damages for the breach. If the breach is serious enough, it may result in automatic discharge of the contract.
4. Frustration
Frustration occurs when circumstances arise that make it impossible for the contract to be performed. For example, if a contract is for the sale of a specific item and the item is destroyed before delivery, the contract may be frustrated. In such cases, the contract is automatically discharged.
5. Novation
Novation occurs when the original parties to a contract are replaced by new parties. This may happen when a business is sold or when a new partner enters into an existing partnership. Once novation occurs, the original contract is discharged and a new contract is formed.
In conclusion, discharge of contract means that the parties to an agreement are released from their obligations under the contract. There are several ways in which a contract can be discharged, including performance, mutual agreement, breach, frustration, and novation. Understanding these concepts is essential for anyone involved in business and contract law.