How can you terminate a business contract? Well, there’re many ways you can do that.
A contract gets discharged when it stops binding the parties. A party can terminate contracts in various ways. They can expressly agree to discharge a contract if they want (Express Discharge). Besides that, they can also terminate a contract by their conduct (Discharge by Conduct). But no matter in which way you’re discharging it, you must show the right mode of discharge.
Wondering how? Well, let’s find that out in the below blog post.
What are the various modes to discharge a business agreement?
In a contract, a discharge is when one of the legally binding parties is removed from following the terms and performing their sides of roles. And here’re the 7 modes of contract discharge,
1. Discharge of contract by the operation of law:
i) It occurs when the terms of the contract are fulfilled by 1 or 2 parties and such fulfillment automatically discharges those parties from the contract.
ii) When a party fulfils their duties as per the contract, they automatically get discharged.
iii) Such discharges happen when a minor becomes an adult, an insurance policy matures or a party dies.
2. Discharge of contract by subsequent impossibility:
i) This type of discharge occurs when an event occurs after the contract and makes one party impossible to carry out his side of the role physically or commercially.
ii) Such discharges happen when a party dies, gets severely sick or does something that holds them back from fulling their duties.
3. Discharge of contract by performance:
i) It occurs when a party fulfils the duties that the other party mentioned in the contract.
ii) Often, it’s also knowns as ‘actual performance.’
iii) The term ‘performance’ defines the act that is required by a duty or promise.
iv) Such discharge happens when someone pays for the goods and receives them from the seller or the bank loans money to someone and that person pays it back.
4. Discharge of contract by lapse of time:
i) It occurs when a party fails to fulfil their duties within the said period of the contract.
ii) The timeline mentioned in the contract is the period fixed for the performance.
iii) If the party fails to complete it within that time, the contract gets discharged due to a lapse of time or delay in performance.
iv) Such discharge happens when the bank loans money to someone and that person fails to repay it within the deadline or the tenant fails to pay the rent within the said time.
5. Discharge of contract by consent or agreement:
i) It occurs when the parties of a contract mutually agree to get discharged from it without changing any terms or conditions of the agreement.
ii) Parties give their consent for the discharge and hence, it’s known as discharge by consent.
iii) Such discharge happens when the parties give consent to discharge the contract by paying some amount to compensate for the loss/damage caused to a party because of breaching.
iv) Also, when the parties mutually agree to not apply certain terms and conditions to either party after a certain period when making the contract, it’s the discharge by consent.
6. Discharge of contract by frustration:
i) It occurs when fulfilling the obligations becomes impossible due to sudden changes made in the contract after signing it.
ii) This type of discharge happens when the change of circumstances results in a change in the contract’s nature.
iii) Such things occur when the commercial purpose of the contract fails, a party dies or the contract becomes illegal.
7. Discharge of contract by breaches:
i) It occurs when a party fails to fulfil their roles as per the contract according to a certain time and place.
ii) When a party breaches a contract, it falls under this category of contract discharge.
iii) Such discharge happens when someone makes promises to do something but stops doing that before the completion and that causes damages to the other party.
Are you thinking of terminating your business contract? Before doing so, ensure the mode of the discharge. And we hope this blog will help you with that.
