Discharge of a contract means termination of the contractual relationship between the parties. A contract is discharged when rights and obligations created by it comes to an end.
Modes of discharge of contract:
a. By Actual Performance: When performance by both the parties is actually performed the contract comes to an end.
b. By Attempted Performance: Sometimes the promisor is ready to perform his promise and offers to perform the same, but the promise refuses to accept it. In such a case, the contract is discharged.
c. Impossibility of Performance:
(i) Initial Impossibility: Where impossibility is existent at the time of entering into contract.
(ii)Subsequent Impossibility: Where impossibility arises subsequently i.e., after the formation of contract.
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2. Mutual Agreement:
A contract is created by the parties to it. Therefore it can also come to an end by their mutual agreement. The parties may make a new agreement that will discharge or modify the obligations of one or both parties under the original contract.
3. Lapse of Time:
A contract should be performed within a specified period as prescribed by the Limitation Act, 1963. If it is not performed and if no action is taken by the promise within the specified period of limitation, he is deprived of remedy at law.
4. Operation of Law:
A. Death: In contracts of personal nature, death of the promisor discharges the contract.
B. Insolvency: When a person is declared as insolvent by law, he is discharged from all the liabilities incurred, prior to that date. Thus, an insolvent is discharged from performing his part of contract by law. His rights and liabilities are transferred to an ‘official assignee’ appointed by the court.
5. Breach of Contract:
Breach of contract means failure of a party to perform his obligations. When one party commits breach, the aggrieved party can rescind the contract If one of the parties to a contract breaks the promise the party injured thereby, has not only a right of action for damages but he also discharged form performing his part of the contract(Sec-64).