DISCHARGE OF CONTRACT

Discharge of Contract-Definition
As per the INDIAN CONTRACT ACT 1872 –
“Discharge of contract means the
termination of a contractual
relationship between parties”.

A contract is said to be discharged

when it ceases to operate , i.e. when the
rights & obligation created by it come
to an end.
Modes of Discharge of Contract
Discharge by agreement
Discharge by Operation
of Law
Discharge by Breach
Discharge by
Performance
Discharge by
impossibility
Discharge by Lapse of
 Discharge by
agreement
According to sec. 62-64 of Indian Contract Act 1872 –
A Contract can be terminated or discharged by
mutual express or implied agreement between the
parties in any of the following ways - By Agreement or
by Consent.
 By Agreement or Consent
Discharge by agreement in following ways:
Implied

Novation

Alteration

Rescission

Remission

Waiver

Express

Accord & Satisfaction

 NOVATION
“ If the parties to a contract agree to substitute a new contract for it ,
or to rescind or alter it, the original contract need not to be
performed”. That means When a new contract is substituted for an
existing contract, either between the same parties or b/w the different
parties “novation” occurs.

Novation means “the wiping out of the original contract

as well as the creating of a new valid contract”. If the new
agreement is invalid it cannot serve as novation, and the
original contract continues unless the rights thereunder
are expressly abandoned.
Novation may occur in two ways –
I. New party is substituted for the old one.
Ex: A owes money to B under a contract. It is agreed between
A, B and C that B shall henceforth accept C as his debtor
instead of A. The old debt of A to B is at end and a new debt
from C to B has been contracted.
II. Parties may substituted new contract for the old one.
Ex: A owes B Rs. 10,000. A enters into an agreement with B,
and gives B a mortgage of his (A‟s) estate for Rs. 5,000 in the
place of the debt of Rs. 10,000. This is a new contract which
extinguishes the old one.
 Essentials of Novation
1)It occurs with the consent of all
the parties.
2)The new contract must be one
which is capable of being
enforced at law.
3)The agreement to substitute the
new contract for the old one
must be made before the expiry
 ALTERATION
Means a change in one or more of the
material terms of the contract. Two
types
(a). Material Alteration– is one which
alters the legal effect of the contract .
( Loonkaran Sethiya v.Ivon.John)
Ex: change in the amount of money to
be paid, rate of interest or the names
 RESCISSION
It means cancellation of
contract. If the parties to a
contract agree to rescind it, the
original contract need not be
performed. A contract can be
rescinded in following ways.
1)By mutual Consent
 REMISSION
REMISSION Is acceptance of lesser amount
than what was contracted or lesser fulfillment
of the promise made.
Ex: Kapur Chand v.Himayat Ali khan
A owed large sums of money to B. C offered to
pay lesser sum in satisfaction of B’s claim on A.
B accepted it. It was held that the acceptance
was in full satisfaction & B cannot claim
balance from A after receiving payment in full
satisfaction.
 WAIVER
Means the abandonment of a right which a
person is entitled to Means abandoning the
rights When a party waives his right under
the contract, the other party is released of
his obligations

Ex: A promises to paint a picture for B.B

later on forbids him to do so. A is no longer
bound to perform the promise.
 ACCORD &
SATISFACTION
Accord means the promise to accept than
what is due under the old contract.
Ex:Bob offers to give Sally an old car of his in place of
the $600. If Sally accepts the vehicle as a settlement
for the money that was originally owed, she forgoes
her right to the cash and now has a right to the
vehicle Bob promised. The legal term "accord" refers
to the new agreement between Bob and Sally.
Satisfaction means the payment or the
fulfillment of the smaller obligation.
DISCHARGE BY PERFORMANCE
Discharge of performance takes place when the parties to
the contract fulfill their obligations arising under the
contract within the time and in the manner prescribed.
In such a case, the parties are discharged and the contract
comes to an end. But if only one party performs the
promise, he alone is discharged. Such a party gets a right of
action against the another party who is guilty of breach.
Performance of a contract is the most usual mode of its
discharge.
 DISCHARGE BY OPEARTION OF LAW
A contract may be discharged by operation of law which takes place:
Death: If contracts involving personal skill or ability of the promisor,
the contract is discharged/terminated on the death of the promisor
 Insolvency: When a person is adjudged insolvent, he is discharged
from all liabilities incurred prior to his adjudication.
 By unauthorized alteration of the terms of a written agreement:
Where a party to a contract makes any material alteration in the
contract without the consent of the other party, the other party can
avoid the contract
 Merger: It occurs where there is acceptance of a higher security in the
place of lower.
 DISCHARGE BY BREACH
Breach of contract means promisor fails to perform the
promise or breaking of the obligations which a contract
imposes. It occurs when a party to the contract without
lawful excuse does not fulfill his contractual obligation or
by his own act makes it impossible that he should perform
his obligation under it.
Breach of contract may be of two types:
1. Actual breach
2. Anticipatory breach
Actual Breach: It takes place in following ways.
1) Breach of Contract when performance is actually due :
When a person does not perform his part of contract at the time
when it is due, he will be liable for its breach
Ex: A agrees to deliver to B 40 chairs on 1st oct and fails to do so..there is a
breach of contract by A.
2) Breach during the performance of contract :Where a party
to contract performs his part of Contract ,but the other party alleges
that it is not a proper performance according to the terms of the
contract.
Ex: C agreed to supply to a railway company with 3900 chairs .After 1787
chairs had been delivered the company told C that no more will be required.
Anticipatory Breach of Contract:
When a party to contract refuse to perform his part of the
contract before the actual time of the performance of the
contract is due, it is called anticipatory breach of contract‟.
Ex: A contracts with B on 1st Jan to sell 500 quintals of wheat &
to deliver it on 1st May.
Consequences:
1) Treat whole contract as broken & Claim damages(time of
performance not yet arrived)
2) Treat the contract as still operative & wait for the time of the
performance
DISCHARGE BY IMPOSSIBILITY
Sometimes after a contract has been established, something might occur,
though not at the fault of either party, which can render the contract
impossible to perform, or illegal, or radically different from that originally
undertaken.
Impossibility

Existing at the time of agreement arising subsequent the time of

Pre-Contractual Impossibility agreement / to the formation of
contract
Supervening impossibility
Known to the parties
Unknown to the parties
A contract may become impossible of performance
after the date of Contract(Supervening Impossibility)
1) Destruction of subject matter of the
contract: If the subject matter destroyed
without the fault of parties ,the contract is
discharged.
Ex: TAYLOR VS CALDWELL ( music hall )

2)Non-existence or non-occurrence of a
particular state of things: The non-existence or
non-occurrence of a particular state of things
which was considered a given for the
performance of the contract.
3)Death or incapacity of personal skill.
A promise may become physically incapable of
performance by reason of death or incapacity of
some person
Ex: ROBINSON VS DAVISON to sing at a theater. R & D
unable to perform because of illness.
4) Change of law : Contract which are lawful when
made but become unlawful later by reason of change
in law, become impossible of performance
E.g. SHIPTON VS ANDERSON & CO. wheat lying in godown
 Before the delivery godown was sealed by
government
 Contract is discharged as the delivery of wheat
become impossible
5)Declaration of War: A Contract between the
residents of two different countries is valid during peace
time but after the formation of the contract, the war is
declared, then such contracts are cancelled .
 Exceptions:

1) Difficulty of Performance: If the performance becomes

difficult to perform due to happening of some unexpected
event.
Ex: Dimple Coal Supply Sam
War declared
Hence, it can be enforced after the war is over.
2) Commercial Impossibility:
Example: X promised to send certain goods from Bombay to
Calicut in September, In August war broke out and shipping
space was not available except at very high rates.
Held : The increase of freight rates did not excuse
performance
3. Impossibility due to failure of a third person:
B had to deliver the same
goods to C on 3rd Jan 2020

Ex: A B C
A had to Deliver goods to B on
1st Jan 2020
4. Strikes, lockouts and civil disturbances

A agreed to supply B certain goods to be produced in Algeria.

The goods could not be produced because of riots and civil
disturbances in that country
Held : There was no excuse for non-performance of the
contract

5.Failure of one of the objects:

Ex: Herne Bay Steam Boat Co v.Hutton
 Discharge By Lapse Of Time
A Contract must be performed by the parties of contract
within specified time or within reasonable time. If it is not
done the contract gets discharged.
The Limitation Act 1940 lays down that a contract should be
performed within a specified period. if the contract is not
performed, no legal action.

Ex: A borrowed Rs.5000 from B a money lender & agreed

to repay the loan but failed to do it.
B does not demand payment for the same for a period of
3 years. A is discharged from his liability to repay the