Discharge of Contract by Mutual Agreement and Impossibility: What It Means

Contracts are an essential part of business transactions, and every agreement legally binds both parties to fulfill their obligations. However, sometimes unforeseen circumstances occur, and fulfilling the contract becomes impossible or impractical. In such cases, the contract may be discharged by mutual agreement or due to impossibility. In this article, we will explain what these two contractual concepts entail and what they mean for businesses.

Discharge of Contract by Mutual Agreement

Discharge of contract by mutual agreement is a situation where both parties agree to end the contractual relationship. This agreement can be verbal or written, and it must be made with the intention of discharging the contract. When both parties agree to terminate the contract, they are essentially nullifying the agreement altogether.

For example, let`s imagine a scenario where a company hires a contractor to provide services for a specific period. However, due to unforeseen circumstances, the company no longer requires the services. In this case, the company and the contractor can mutually agree to terminate the contract.

It is crucial to note that the discharge of a contract by mutual agreement must be done explicitly. There must be clear communication of the intent to terminate the contractual relationship. If any party breaches the terms of the agreement after the mutual discharge, they can still be held liable for damages.

Discharge of Contract by Impossibility

Discharge of a contract by impossibility is a situation where the contract becomes impracticable to perform due to unforeseen or uncontrollable circumstances. This impossibility must be objective and not caused by either party`s fault or negligence. In such cases, the contract may be discharged with no liability for either party.

There are three types of impossibility that can lead to discharge of a contract:

1. Physical Impossibility: This is when the subject matter of the contract is destroyed or no longer exists, making it impossible to fulfill the agreement. For example, if a company contracts with a supplier to provide a specific product, but the product is destroyed in a fire, it becomes impossible to fulfill the agreement.

2. Legal Impossibility: This is when the performance of the contract becomes illegal due to new laws or regulations. For example, if a company contracted with a supplier to deliver goods to a location that becomes inaccessible due to a new law or regulation, the contract becomes legally impossible to fulfill.

3. Practical Impossibility: This is when the performance of the contract becomes impracticable or unfeasible. For example, if a company contracts with a supplier to provide goods that are no longer available or have become too expensive, the contract becomes practically impossible to fulfill.

In conclusion, the discharge of a contract by mutual agreement and impossibility are two essential concepts that businesses need to understand. A mutual agreement to discharge a contract can only be done explicitly, while impossibility must be objective and not caused by either party`s fault or negligence. Understanding these two concepts can help businesses navigate unforeseen circumstances in their contractual relationships and avoid costly legal claims.