Discharge of a Contract by Agreement: What You Need to Know

A discharge of a contract by agreement is when you end a contract when the terms and conditions have been met or fulfilled. However, the involved parties can also choose to terminate a contract even when the primary terms and conditions of the said contract have not yet been fulfilled. Essentially, the difference between a discharge of a contract and terminating contract come down to the reasons why the contract is coming to an end.

Discharge by Performance

In the case of a discharge of a contract, when all involved parties have met their obligations as defined by the terms and conditions of the contract, then the contract has come to an end. While most contracts to allow for minor deviations from what was spelled out in the initial contractual agreement, for a contract to be completed, the terms and conditions must have been met and all parties must be in agreement and satisfied with the end result.

At this point, all of the involved parties are relieved of any future liability, which is also known as actual performance, and the involved parties have discharged the contract by mutual consent. As an example, if you’re a home owner who has hired a contractor to add an addition onto your home, you will want to ensure you are satisfied with the addition and there are not any defects before issuing final payment and rendering a discharge of contract.

An example of this may be if you purchase a coffee maker with the understanding that you have 30 days to return it if it doesn’t work. Should you return the coffee maker within that 30-day period, the parties involved can either enter into a new contract by exchanging the defective coffee maker for a new one or completely terminate the contract by offering you a refund and allowing you to find another store or vendor from which to purchase a coffee maker. In either scenario, the original contract is now terminated.

Sometimes, you may find yourself in a position in which only you have fulfilled your end of the contractual agreement. In such a case, only you are seen to have a discharge of a contract, at which time, you are within your rights to take legal action against the other party or parties for damages or compensation for non-performance.

You may also find yourself in a position of making an offer to perform a certain job or task, which is known as tender, but the other party does not wish to accept that performance. Provided that your offer to perform was valid within the scope of contract law (the terms and conditions are legal, all involved parties are legally capable of entering into a contract, etc.), you are not obligated to perform that job.

Mutual Discharge of a Contract

Mutual discharge of a contract can occur in a few different ways:

• Novation, which is substituting an old contract for a new one. Using the previous example of purchasing a coffee maker, should you choose to exchange the defective coffee maker for a new one by that same seller, then you are entering into a new contract with vendor. Additionally, novation requires the consent of all the involved parties and must be legally enforceable. If it is not legally enforceable, then the involved parties will still be bound by the terms and conditions of the original contract. The new contract must be implemented before the expiration date of the initial contract; if you have 30 days to return the defective coffee maker, you cannot arrive at the store on day 31.
• Alteration occurs when all of the involved parties agree to making some changes to only the terms and conditions of the original contract. When this occurs, the previous contract is discharged. Should there be a lack of full consent among all of the involved parties, however, the alternation is not considered valid, and the original contract will remain the one by which everyone is obligated. Some contracts may undergo what are called material alterations, an example of such being changing the amount of money paid by one party to the other. Even though the nuts and bolts of the contract are not necessarily being altered, this change does have an impact on the liability of it.

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