Discharge of Contract – Operation of Law, Breach & Lapse of Time
Discharge of Contract by Operation of Law
The contract is discharged by the operation of law when a contract is discharged by the intervention of law. This can be done in any of the following ways:
1. Material Alteration
Material alteration means any alteration or change in the contract that affects the rights and liabilities of the parties to the contract significantly. Material alteration puts an end to the contract.
If one party without the consent of the other party makes such an alteration in the contract, the other party can avoid the contract. In such cases, the effect of alteration would be the same as that of cancellation of the document. However, an alteration which is not material or which is made to carry out the common intention of the parties, does not affect the validity of the contract.
2. Merger
It is an operation of law that extinguishes a right due to its coincidence with another greater right in the same person. On merger, the inferior rights are not required to be enforced.
3. Insolvency
The insolvent is neither allowed to deal with his property nor to pay any of his creditors. After a person is adjudicated as insolvent, all of his rights and liabilities are transferred to the Official Receiver or the Assignee, as the case maybe. When he is adjudged as insolvent, he is discharged from all liabilities incurred prior to his adjudication.
4. Death
In case of contracts, which involve personal skill or ability, the contract is discharged or terminated on the death of the promisor. However, in other contracts, the rights and liabilities of a deceased person shall pass on to the legal representatives of the deceased person.
Discharge of Contract by Breach of Contract
The breach of contract means the failure of a party to perform his obligations. Breach of contract discharges the aggrieved party from performing his obligations. It may arise in any one of the following forms:
1. Anticipatory Breach of Contract
Anticipatory breach of contract occurs, when a party repudiates it before the time fixed for performance has arrived or when a party by his own act disables himself from performing the contract. It is the premature destruction of the contract.
2. Actual Breach of Contract
The actual breach of contract may take place:
- At the time when the performance is due, or
- During the performance of the contract.
1. Actual Breach of Contract at the Time when the Performance is Due
This type of breach of contract occurs when a person does not perform his part of the contract at the stipulated time. Here the person, who failed to perform his part, will be liable for its breach.
2. Breach during the Performance of the Contract
Actual breach of contract also occurs when during the performance of the contract one party fails or refuses to perform his obligation under the contract.
This refusal to perform the contract may be by
- Express repudiation by word or act or
- Implied repudiation by creating impossibility by the act of a party to the contract.
In both the cases, the party not in breach can treat the contract as no longer binding on him and sue for breach of contract.
Discharge of Contract by Lapse of Time
As per the provisions of the Limitation Act, 1963, a contract should be performed within a specified period. Such period is called period of limitation. The Limitation Act specified different limitation period for different kinds of contracts. If the contract is not performed and if the aggrieved party takes no action within the limitation period, he is deprived of his remedy at law.
In other words, after the expiry of the period, the Courts will not enforce the contract. Thus the contract is discharged because parties to the contract cannot enforce their respective obligation through the Courts of law.
