State the various modes of discharge of a contract.

A contract may be discharged in any of the following ways:

By Performance:

It is the natural mode of discharge of a contract, that is, by its performance. Which may either be actual or an attempted one.

By Mutual Agreement:

A contract is created by mutual agreement, it can also be discharged by mutual agreement, in the following ways:

Novation: Novation refers to the substitution of a new contract for the existing one. This agreement can be made either between the same parties or between different parties. This further means that the consideration for the new contract is the discharge of the original contract.

Rescission: Rescission refers to the cancellation of the contract. The contract gets discharged when the contracting parties by a mutual agreement agree to rescind the contract. It is different from Novation as no new contract is created when the original contract is cancelled.

Alteration: It refers to a change in one or more terms of the contract with the consent of all the parties. Thus, there is change in the terms of the contract but no change of parties.

Remission: It refers to the acceptance of a lesser sum than what was contracted for or a lesser fulfillment of the promise made.

Waiver: Waiver means the abandonment or intentional relinquishment of a right under the contract.

By Lapse of Time.

The specified period under which a contract can be enforced is referred to as the period of limitation. It is this Limitation Act, 1963 has prescribed the different periods for different contracts.

By Operation of Law.

A contract may be discharged by the operation of law in the following cases:

  • Death a the Promisor.
  • Insolvency.
  • Merger.
  • Material Alteration.

By Impossibility of Performance.

The effects of impossibility of the performance of a contract can fall under:

Initial Impossibility: It refers to the impossibility of performance while making the contract. In case of non-performance, the promisor needs to compensate the promisee in case of any loss.

Subsequent or Supervening Impossibility: It refers to the impossibility which arises subsequent to the making of the contract. The parties to the contract get discharged from their liability where the contract was capable of performance at the time of making it, however, subsequently due to some event the performance becomes impossible or unlawful, and then the contract becomes void.

By Breach.

If any party to the contract refuses or fails to perform his part of the contract or by his act makes it impossible to perform his obligation. The breach may happen in the following cases:

  • Actual Breach: It takes place either on the due date of performance or during the course of performance.
  • Anticipatory Breach: It occurs when the party declares his intention of not performing the contract before the performance is due.

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