To explain discharge of contract, it's important to know what it means. To discharge a contract means to terminate contractual obligations or make the agreement null.

About Discharge of Contract

When parties enter into a contract, each has rights and duties that are spelled out in the agreement. When the sides perform their rights and duties, the contract is then discharged. In these cases, discharge of contract refers to an agreement that's fully performed.

However, discharge of contract can happen due to other circumstances. Sometimes, obligations are incomplete, but the parties are no longer liable for them.

When a contract is discharged, it's no longer binding. The following events may cause discharge of contract:

  • Substituted agreement
  • Performance
  • Lapse of time
  • Operation of law
  • Impossibility of performance
  • Accord and satisfaction
  • Contract breach
  • Release
  • Extinguishment
  • Set off
  • Confusion, when the obligation to pay and the duty to receive unite in the same party
  • Defeasance
  • Extinction, or a contract's loss of subject matter
  • An inability of a party to fulfill his or her obligation
  • Bankruptcy
  • Death of a contractor who undertook to teach an apprentice
  • Neglect to give notice to the party charged
  • Neglect to sue a principal at the surety's request
  • Discharge of a defendant
  • By certificate and discharge according to bankruptcy laws

Contract Discharge vs. Termination

When the main obligations of an agreement come to an end, discharge of the contract occurs. This means the contractual relationship is now terminated. However, parties can terminate an agreement even if they don't fulfill their primary contractual obligations.

The differentiator between contract discharge and termination is the conditions that lead to the end of the contractual relationship. There's a thin line that marks this difference.

Performance

When parties perform their contractual obligations or duties — in essence, “discharge” them — then discharge of contract occurs. Their performance leads to the end of the contract.

Nonperformance, on the other hand, leads to termination of the contract. This is when one or both sides fail to fulfill required obligations and duties.

For example, if a musical artist appears at a show and performs, the host and the artist discharge the contract when the performance ends. However, if the artist chooses not to appear or doesn't wish to perform, the host may choose to terminate the agreement.

Fraud

If one or both contractual parties engage in misrepresentation of facts or any fraudulent acts, the agreement may be legally terminated.

When conditions are fraudulent, it's clear that one or both parties are unable to discharge obligations or duties. No party is obligated to continue with an agreement that contains misrepresented facts or is fraudulent. Coming out of the agreement is the easiest legal action to take.

When a party comes out of a contract due to misrepresentation of facts or fraud, it's known as rescission.

Contract breach

When a party to a contract doesn't fulfill its obligations or does something to contradict the agreement, breach of contract occurs. A breach may also happen if one side makes it impossible for the other to fulfill its duties and obligations. If a court finds a breach to be material — such as causing loss and damages to the affected party — both sides may choose to terminate the contract.

Agreement

When certain conditions are outlined in an agreement, both parties may decide to terminate the contract by agreement. This may happen when circumstances arise that are unfavorable to either side. Parties may also discharge a contract as soon as certain obligations are met.

In some cases, frustrating conditions may lead parties to agree to termination, such as government regulations over which they have no control. Without those conditions, both sides would otherwise have honored their obligations and then discharged the contract at their agreed upon time.

While contracts are usually legally binding documents, there are times when parties can be released from their contractual duties. Although there's a fine line of distinction between contract discharge and termination, knowing the difference is helpful if you ever need to get out of an agreement. Consulting with an expert in contract law can clarify things if you have any questions about an agreement you entered into.

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