Everything must come to an end… even the obligations of a contract. This process is often referred to as a discharge of a contract or a termination of a contract.
But how do these terms differ, and when should you use them? Read on to find out.
What is discharge of contract?
A discharge of contract occurs when the primary obligations of a contract have been performed, meaning that the parties are ‘discharged’ from the contract.
For example, if you were to hire a band for a wedding or a party, they performed and were paid according to the contract terms, both parties would discharge the contract. This is because the terms of the agreement have been met by each side.
However, if the band does not turn up at the allotted time to perform and misses said performance, the hiring party may terminate the contract.
What is termination of contract?
Contract termination occurs when one or more parties do not meet the requirements in the contract and end it before it has been discharged.
Termination is also an option if one party is found to have materially breached the contract and caused substantial harm. Parties can also terminate a contract on more positive terms by making a mutual decision to end it.
There are also certain events or circumstances in which a contract may be terminated. You can see an example of ‘termination conditions’ in action in this clinical trial agreement template.
What is the difference between discharge and termination?
The main difference is that discharge takes place when both parties have fulfilled their contractual obligations, while termination does not require this to end a contract. Ultimately, the conditions under which a contractual relationship ends determines whether the contract will be discharged or terminated.
Another key difference is the amount of human intervention involved in this process. In order to terminate a contract, there has to be a valid reason given, while discharge requires nothing more than conditions to be met.
In fact, there are various reasons why a contract may be terminated, including:
- Breach of contract. A breach of contract occurs when one party fails to discharge their obligations under the contract or does that directly contradicts the terms of the contract. Either party may terminate a contract if a court finds that the breach is material.
- Termination by agreement. This is when both parties agree to terminate the contract under conditions outlined within the contract. For example, if circumstances arise that are not favourable to either side of the party or that make it impossible for either side to fulfil their obligation.
- Rescission of the contract. A rescission of contract is when a contract is terminated due to an individual misrepresenting themself, acting illegally or making a mistake. For instance, if somebody purposely lists false information when they apply for a job because they think they might not be accepted otherwise, their contract could be rescinded.
- Impossibility of performance. Typically, a contract requires you to do something in order to effectively discharge it. So if you invite a paid speaker to talk at a company event and for some reason they cannot ‘perform’, this is called impossibility of performance, and the company has grounds to terminate the contract.
Does discharge mean termination?
Discharge does not mean termination. However, the outcome of both scenarios is that a contract ends.
Discharge only happens through performance. It occurs when a party is discharged from its obligations under a contract because they have performed the terms within it. Termination, on the other hand, occurs when a party ends the contract prior to it being discharged.
When a contract is terminated, each party remains accountable for their lack of performance under it. This is why you often see innocent parties terminating the contract and suing for damages for the breach. The idea is that the contract ends, but the innocent party remains in a position that they would have been in if the contract was performed.
How to manage contract terminations
Can I terminate this contract? Is the other party entitled to get out of this contract?
These questions are often raised when the performance of a contract doesn’t go according to plan, as managing contract terminations can be tough.
At the termination stage, both parties will often want different things, making it a complex and frustrating process. This is why it’s important to create robust contracts in the first place to ensure that contractual obligations can be managed.
Fortunately, this process can be made easier using contract management software. All-in-one contract tools like Juro enable all teams to streamline the creation, execution and management of routine contracts at scale. This enables teams to agree contracts 10x faster, with increased visibility and control over the terms you agree.
With Juro, users can:
- Generate contracts using terms and automated contract templates pre-approved by legal teams
- Negotiate contracts and maintain version control with a collaborative workspace that enables parties to collaborate on contracts in real time
- Set up contract approval workflows to ensure legal retains control over the terms in high-value contracts
- Sign contracts securely from anywhere using Juro’s native e-signature feature
- Centralize contract storage with contract repositories that make it easy to find, query, track and manage your contracts
- Set up automated contract reminders to keep you in the loop about upcoming renewals and obligations
This functionality makes it easier to create and negotiate watertight contracts. It also reduces the likelihood of contract breaches by providing greater visibility into your contractual obligations.
To find out more about how Juro can make your contracting process faster and more efficient, fill in the form below to speak to our team of specialists.