A contract is discharged agreement when the parties thereto agree to discharge it. It is justified on the premise that whatever is created agreement may be extinguished agreement. Discharge agreement may be bilateral or unilateral.
Discharge of performance
A contract is discharged performance when both parties dutifully perform their obligations. Each party has performed its promise. At common law, discharge performance was only possible if parties performed their obligations precisely and exactly.
Contractual terms had to be observed to the letter. This is the common law doctrine of “precise and exact.” (Cutter V. Powell).
Discharge impossibility or doctrine of frustration
A contract is said to be frustrated when performance of the contractual obligations is rendered impossible, illegal and commercially useless reason of extraneous and unforeseen factors for which neither party is to blame. The parties are discharge from performance. A contract may be frustrated destruction of subject matter, non-occurrence of an event, illegality, state intervention, death and permanent incapacitation. When contract is frustrated, it is terminated.
Discharge of breach
Breaching of contract does not discharge it. It only entitles the innocent party to treat the contract either as repudiated or subsisting. If it treats it as repudiated, it is not bound to perform its part. However, if it treats it as subsisting, it is bound to perform its part. It can only treat the contract as repudiated. If the term breached is fundamental. Breach of contract may be anticipatory breach or actual breach.
If the terms of an oral contract are incorporated in a subsequent written agreement between the parties, the oral contract is terminated operation of law as it has been swallowed up the latter.
Lapse of time
If parties to a contract specify the duration of their relationship, the contract terminates on expiration of the duration, for example indemnity contracts of insurance last for one year.