Discharge of Contract

Updated on Jul 02, 2025 05:37 PM IST

The meaning of Contract according to the Indian Contract Act is an agreement between two parties on acceptance of an offer from one party to the other. A contract is enforceable by law. The main ingredient of contract law is the mutual promise between two parties to perform an act as decided in the agreement. In a contract, the promises which are made by both parties in an agreement are bound for the parties to follow.

This Story also Contains

Essential Conditions to be fulfilled for a contract:
Discharge of contract
Modes of Discharge of Contract
Types of Breach of Contract
Novation
Remissions
Merger
Conclusion

Discharge of Contract

Essential Conditions to be fulfilled for a contract:

For the formation of a valid contract, there are some essential conditions which must be fulfilled, they are given below-

There must be two parties to an agreement. And there should be valid acceptance and offer between the two parties.
Both the parties entering into the contract should be competent enough to enter into a contract.
In a valid contract, there should be law full consideration and a lawful object.
Free consent is essential for a valid contract. Neither party to a contract should be forced.
The contract will be termed invalid when the contract is expressly declared to be invalid in the initial process of the agreement.

In the discharge of the contract, a contract is an agreement between two parties when a valid offer and acceptance is made by both parties. When an agreement is formed between two parties the promises and obligations made in a contract are enforceable by law. A contract is binding on both parties and when both parties perform their part of the contract it is said to be a discharge of the contract.

Modes of Discharge of Contract

A contract is a mutual agreement between two parties which is followed by promises and obligations. And the promises and obligations made in a contract are enforced by law and the parties to the contract are bound to perform their part of the contract. There are different ways through which a Discharge of the contract. The way through which a contract is discharged is given below.

1. Discharge of contract by performance of the contract

Discharge of the contract when the contract consists of promises and obligations that parties are bound to perform by the parties to a contract. The liability of the parties to perform comes to an end after the performance of the contract. When the parties to the contract perform their part in a contract the contract is said to be discharged. Every contract brings the obligations of reciprocal promises between the parties and the law makes the parties to a contract bound to perform their part.

Section 37 of the Indian Contract Act 1872 says that the parties to a contract must perform their part of the promise or offer to perform their part within the stipulated period as decided between the two parties during a contract.

Section 38 of the Indian Contract Act 1872 lays down that just like actual performance, an offer to perform by the promisor to the promisee hence discharges a promisor from his obligations.

Illustration - X and Y enter into a contract and X offers to perform his part of the contract, but Y refuses to perform his part made in the contract in such a case X will be discharged from his duty and obligations from the contract, as X has already offered to perform his part as decided in the contract.
Exceptions to the performance of a contract- There are two exceptions to the performance of the contract as provided by the law. Under which in some circumstances this exception applies. Firstly, if such promises are dispensed and secondly, if such performance or promises made in the contract are excused by the provision established by law.

2. Discharge of contract by Breach of contract

Discharge of the contract occurs when both parties agree to the terms and conditions and promises made in a mutually agreed agreement when the contract takes effect. The promises made in a contract are bound for the parties to follow as a valid contract is enforceable by law. When either party to the contract fails to perform or refuses to perform the promises made in a contract the breach of contract takes place.

Types of Breach of Contract

A Breach of contract generally occurs when either party to the contract fails or refuses to perform or neglects the promises made in the contract. Breach of the contract is of two types depending on the parties' performance or non-performance of the contract.

1. Actual Breach of Contract:

When there is a contract between two parties and as decided in the agreement by both parties, the parties are bound to perform their duties and obligations as made in the contract. And in circumstances when either party to the contract fails, refuses or neglects to obligations and promises made in the contract the Actual breach of contract takes place.

2. Anticipatory breach of contract:

Section 39 of the Indian Contract Act deals with Anticipatory breach of contract, which says that when either party to the contract refuses to perform their part of the obligations or promises as made in the contract anticipatory breach of contract takes place.

In an anticipatory breach of contract, there is a valid offer and acceptance but when the promises do not perform the promises due to refusal to perform, neglecting the promises, or disabling himself from performing before the date has arrived when the promises needed to be fulfilled it is said to be an anticipatory breach of contract.

Effects of anticipatory breach of contract:

An anticipatory breach of contract is when one party refuses to perform the promises made in a contract. In such a case the contract is brought to an end.

There are two alternatives for either party if the other party to the contract fails to perform their part of the contract. Firstly, The affected party can bring an end to the contract or bring an action against the non-performing party for breach of contract. Secondly, the other party to the contract also has the choice to not end the contract and wait for the date on which the contract was meant to be executed.

3. Discharge of contract due to the impossibility of the performance

Discharge of the contract when Section 56 of the Indian Contract Act 1872 says that when an agreement or promise made in a contract is impossible to act on or impossible to perform the contract itself is void.

Discharge of the contract when Section 56 lays down that a contract becomes void when the promises that were made in the contract during an agreement, the promises which were made are impossible to act on or perform for various reasons or events which the promisor couldn’t ignore or prevent then in such circumstances the contract will be void as established by the law.

Discharge of the contract when any promises or obligations or acts upon which the contract is based if the act or the promise or obligation mentioned in the contract are impossible to follow or unlawful to follow such a contract will be void as given under section 56 of the Indian Contract Act 1872.

Discharge of the contract when the word impossibility used in this section may bring many meanings impossibility does not only mean physical impossibility to perform an act or purpose or obligation. The scope of the word impossibility also covers the restrictions to perform something that has been put out by the law. If any contract leads to a performance of an act and the act is unlawful then such a contract will be void.

Discharge of the contract when the impossibility of performing is inspired by the legal maxim,”les non cogit ad impossiblia” which means that the law cannot compel any man to do something which he cannot possibly perform.

Discharge of the contract when Section 56 is based on the legal maxim,”les non-cogit ad impossible.” which means the law does not compel a man to do what he cannot possibly perform.

Doctrine of Frustration

The doctrine of Frustration is mentioned under section 56 of the Indian Contract Act 1872 which means a promise made in a contract which is impossible to perform for the contract is frustrated. The promisor is excused from performing the promise made in a contract when the performance becomes impossible to perform. This situation is known as the Doctrine of Frustration.

In the case of Taylor v. Caldwell.

In this case, the performance of a contract becomes impossible and the parties to a contract are excused from the obligations when the contract is negative and not absolute if the thing on which the contract was based ceases to exist anymore. In the following case, A the owner of a music hall permitted B to his hall for a music concert which was to be held for four days. B agreed to the agreement and paid the rent for the music hall, but before the date of execution arrived due to a fire in the music hall the hall was destroyed and after this B filed a suit against A for breach of contract.
The court in this case held that the contract that was made between A and B is void as A couldn't execute the promise as the hall was destroyed by fire. And therefore the court didn’t hold A liable for the breach of contract.

4. Discharge of contract by Agreement and novation

Section 62 and Section 63 of the Indian Contract Act 1872 describe a situation under which the obligations and promises of a contract come to an end with the consent of the parties. This can also be termed as discharge by mutual agreement. If the parties to a contract mutually decide to end the promises and obligations made in a contract it will lead to the end of the contract.
Illustration - X owes rupees ten thousand from Y under a contract formed between the two parties, but X and Y both after negotiations mutually conclude that Z a third party who was initially not in the contract will pay back the money to X on behalf of Y then in such a case it will lead to discharge of a contract by mutual agreement between the two parties to a contract.

Novation

When an existing contract is substituted with a new contract it is called Novation. Novation means a mutual negotiation between two parties leading to an agreement under which a new contract replaces the existing contract, in such a case the parties to a contract will be discharged from their obligations as soon as the new contract replaces the old one.

Kinds of Novation

There are two kinds of Novation, they are-

1. By change of terms and conditions that were mentioned in the contract

Both parties to a contract are allowed to alter the terms and conditions that were mentioned in the contract through mutual agreement between the two parties involved in a contract. After the terms and conditions of a contract are altered the parties are discharged from the old terms and conditions that were mentioned in the agreement and have to perform as per the new terms and conditions mentioned in the contract.

In the case of Salima Jaheen v. National Insurance Co. Ltd.

In this case, the appellant’s house was set on fire by militants causing substantial damages to her house and the appellant was involved in a contract with an insurance company for a sum amount of 23 lacs.
After her hose was burnt down by the militants the two surveyors were sent by the insurance company to look into the damages and decide the amount to be paid as insurance to the appellant the appellant was paid 6 lacs rupees of compensation and the appellant was satisfied with the compensation paid by the insurance company.
The court in this case held that as the appellant was satisfied with the compensation that was paid to her the terms and conditions of the insurance contract had changed and it would not lead to a breach of contract.

2. By a change in the parties who were involved in the contract.

In a contract, both parties to a contract can mutually decide and reach an agreement and involve a third party. The involvement of a third party means the obligations of the contract will be transferred to the third party.
In the case of Satish Chandra Jain v. National Small Industries Corporation
In this case, the appellant was a guarantor to deal for funding done to a business venture owned by his son. The appellant’s son then converted the business into a private limited company.
The court in this case held that due to changes in the terms and conditions of the company, it amounted to novation and the appellant was discharged from his role as a guarantor.

Remissions

According to Section 63 of the Indian Contract Act, 1872 remissions means when either party to a contract agrees to accept the amount of money which is lesser than the amount of money based on which the contract was based.

Section 63 of the Indian Contract Act 1872 a party is entitled to firstly, dispense or remit whether or fully or in part the performance as decided in the contract. Secondly, either party to a contract can increase the time of performance. Thirdly, the parties to the contract can mutually decide on accepting any other object or money replacing the original performance as was mentioned in the contract.

Merger

When in a contract a new superior right replaces the old right which happened to be inferior to the new right or the existing one in such a case, the old right or the inferior right or obligations that were decided in a contract remains discharged and is merged with a new superior right.

Conclusion

A contract is a mutual agreement between two parties and the obligation and the rights mentioned in a contract come to an end when the obligations are fulfilled or performed by both the parties within stipulated time. Then this can be termed as discharge of contract. Different ways of discharging of contract has been mentioned under the Indian Contract Act 1872 relating to the discharge of a contract. Also, this act provides remedies and compensation to the injured party or the party who has sustained a loss.

Frequently Asked Questions (FAQs)

1. What is the discharge of a contract?

A contract is an agreement between two parties when a valid offer and acceptance is made by both parties. When an agreement is formed between two parties the promises and obligations made in a contract are enforceable by law. A contract is binding on both parties and when both parties perform their part of the contract it is said to be a discharge of the contract.

2. What is the doctrine of frustration?

3. What's the meaning of novation?

4. What is the meaning of a merger in the discharge of a contract?

5. What is remissions?

6. What are the modes of discharge of contract

A contract may be discharged in a number of ways, such as through performance, agreement, frustration, breach, operation of law, or passage of time.

7. What is the difference between discharge and termination of a contract?

The primary distinction between discharge and termination is that the former occurs when all parties have performed their contractual obligations, while the latter does not. Whether a contract is discharged or terminated ultimately depends on the circumstances surrounding its termination.

8. What is meant by 'discharge of contract'?

Discharge of contract refers to the termination or end of contractual obligations between parties. It occurs when the rights and duties under a contract cease to exist, either through fulfillment of the contract terms, mutual agreement, or other legal means.

9. How does operation of law discharge a contract?

Operation of law can discharge a contract in various ways, such as when a new law makes the contract illegal, when one party dies in a contract for personal services, or when a company involved in the contract goes bankrupt.

10. What is the role of force majeure clauses in contract discharge?

Force majeure clauses are contractual provisions that outline specific events or circumstances beyond the parties' control that would excuse performance or allow for contract termination. These clauses help define when and how a contract can be discharged due to unforeseen events.

11. Can a unilateral mistake lead to contract discharge?

Generally, a unilateral mistake (a mistake made by only one party) does not lead to contract discharge. However, in rare cases where the non-mistaken party knew or should have known about the mistake, a court might allow rescission (cancellation) of the contract.

12. What is the effect of illegality on contract discharge?

If a contract becomes illegal after it's formed (due to changes in law, for example), it is automatically discharged. Neither party can enforce the contract, and in some cases, any partial performance may need to be undone.

13. How does duress affect contract discharge?

Contracts entered into under duress (unlawful pressure or threats) are voidable. If a party can prove they were under duress when forming the contract, they may be able to have the contract discharged through rescission.

14. What is the effect of a 'time is of the essence' clause on contract discharge?

A 'time is of the essence' clause makes timely performance a crucial term of the contract. Failure to perform on time under such a clause can be considered a material breach, potentially leading to contract discharge and allowing the non-breaching party to terminate the contract.

15. Can a contract be discharged by tender of performance?

Tender of performance occurs when one party offers to fulfill their contractual obligations, but the other party refuses to accept. While this doesn't automatically discharge the contract, it can protect the tendering party from being in breach and may lead to discharge if the refusal is unjustified.

16. What is the doctrine of frustration of purpose?

The doctrine of frustration of purpose applies when an unforeseen event fundamentally changes the nature of the contract, making its primary purpose impossible to achieve. This can lead to discharge even if literal performance is still possible.

17. What is the role of time in contract discharge?

Time can play a crucial role in contract discharge. If time is specified as "of the essence" in a contract, failure to perform by the specified time can lead to breach and potential discharge. Even without such a clause, unreasonable delay can sometimes lead to discharge.

18. How does merger affect contract discharge?

Merger occurs when a higher form of contract (like a deed) replaces a lower form (like a simple contract) dealing with the same subject matter. The original contract is discharged and replaced by the new one.

19. How does 'discharge by merger' differ from novation?

While both involve the replacement of one contract with another, discharge by merger typically occurs when a contract is replaced by a more formal agreement between the same parties (like a simple contract being replaced by a deed). Novation, on the other hand, often involves the introduction of a new party.

20. Can a contract be partially discharged?

Yes, a contract can be partially discharged. This occurs when some obligations under the contract are terminated while others remain in force. This can happen through partial performance, agreement, or operation of law.

21. How does bankruptcy affect contract discharge?

Bankruptcy can lead to the discharge of certain contractual obligations. In many jurisdictions, when a party declares bankruptcy, they may be released from some or all of their contractual debts, effectively discharging those contracts.

22. How does the doctrine of promissory estoppel relate to contract discharge?

Promissory estoppel can prevent a party from insisting on their strict legal rights to enforce or discharge a contract if they have made a clear promise not to do so, and the other party has relied on that promise to their detriment.

23. How does performance discharge a contract?

Performance discharges a contract when both parties fulfill their contractual obligations completely and satisfactorily. Once each party has done what they promised to do under the contract, the contract is considered discharged by performance.

24. How does frustration discharge a contract?

Frustration discharges a contract when an unforeseen event occurs after the formation of the contract, making it impossible to fulfill the contractual obligations. This event must be beyond the control of the parties and not due to the fault of either party.

25. Can a contract be discharged by agreement?

Yes, a contract can be discharged by agreement. This occurs when all parties involved mutually decide to terminate the contract, either through an express agreement or by conduct implying such an agreement.

26. What is the difference between impossibility and frustration?

Impossibility refers to a situation where it becomes physically or legally impossible to perform the contract. Frustration is a broader concept that includes impossibility but also covers situations where performance is still possible but would be radically different from what was originally intended.

27. How does the doctrine of lapse of time affect contract discharge?

The doctrine of lapse of time can discharge a contract when a specified time limit for performance has passed, or when an unreasonable amount of time has elapsed, making the contract's purpose obsolete or impossible to achieve.

28. What is novation in contract discharge?

Novation is a method of discharging a contract by substituting the original contract with a new one. This can involve replacing one of the original parties with a new party or creating an entirely new contract between the same parties.

29. What is the concept of 'discharge by substituted agreement'?

Discharge by substituted agreement occurs when the parties agree to replace their existing contract with a new one. The old contract is discharged, and the parties' obligations are now governed by the terms of the new agreement.

30. What is meant by 'accord and satisfaction' in contract discharge?

Accord and satisfaction is a method of discharging a contract where the parties agree to accept an alternative performance in place of the original obligation. The 'accord' is the agreement to accept a different performance, while the 'satisfaction' is the actual performance of that new agreement.

31. How does alteration of a written contract affect its discharge?

Material alteration of a written contract without the consent of all parties can lead to discharge of the original contract. If the alteration is substantial, it may render the entire contract unenforceable.

32. How does the doctrine of 'commercial impracticability' relate to contract discharge?

Commercial impracticability is similar to frustration but focuses on situations where performance becomes extremely burdensome or costly, rather than impossible. In some jurisdictions, this can lead to contract discharge if the impracticability was unforeseeable and not caused by the party seeking discharge.

33. What is the role of waiver in contract discharge?

Waiver occurs when one party voluntarily gives up a right they have under the contract. This can lead to a partial or full discharge of the contract, depending on the nature and extent of the waiver.

34. What is the role of 'severance' in partial contract discharge?

Severance allows courts to remove (and thus discharge) specific unenforceable provisions from a contract while keeping the rest intact. This can lead to partial discharge of a contract, where only the offending clauses are eliminated.

35. How does the 'prevention principle' affect contract discharge?

The prevention principle states that a party cannot benefit from their own breach. If one party prevents the other from performing their contractual obligations, they cannot then claim breach or seek to discharge the contract based on that non-performance.

36. What is the effect of a condition subsequent on contract discharge?

A condition subsequent is a contractual provision that, if triggered, can terminate the contract. When the specified condition occurs, it automatically discharges the contract, releasing the parties from further obligations.

37. How does the death of a party affect contract discharge?

The death of a party generally discharges contracts for personal services that can't be performed by anyone else. However, many other types of contracts survive death and become the responsibility of the deceased's estate.

38. Can a breach of contract lead to discharge?

Yes, a breach of contract can lead to discharge. If one party commits a material breach (a significant violation of the contract terms), the other party may be entitled to treat the contract as discharged and seek remedies.

39. What is anticipatory breach?

An anticipatory breach occurs when one party indicates, either through words or actions, that they will not fulfill their contractual obligations before the time for performance has arrived. This allows the other party to treat the contract as discharged immediately.

40. What is the difference between actual and substantial performance?

Actual performance is when a party fulfills their contractual obligations exactly as specified. Substantial performance, on the other hand, occurs when a party has completed the essence of their contractual duties, even if there are minor deviations that don't significantly affect the contract's purpose.

41. What is rescission and how does it relate to contract discharge?

Rescission is the cancellation of a contract, returning the parties to their pre-contractual positions as if the contract never existed. It's a form of discharge that can be initiated by mutual agreement or by one party in response to a serious breach or misrepresentation.

42. What is the difference between void and voidable contracts in terms of discharge?

A void contract is considered never to have existed legally and is automatically discharged. A voidable contract, however, is valid until one party chooses to void it, at which point it becomes discharged.

43. What is the concept of 'discharge by breach'?

Discharge by breach occurs when one party commits a serious (material) breach of the contract terms. This allows the innocent party to treat the contract as discharged and potentially seek remedies such as damages or specific performance.

44. How does the concept of 'fundamental breach' relate to contract discharge?

A fundamental breach is a breach so severe that it goes to the root of the contract, essentially depriving the innocent party of the main benefit they expected. Such a breach can justify the innocent party treating the contract as discharged and terminating it.

45. What is the role of 'acceptance of repudiation' in contract discharge?

When one party repudiates (rejects or renounces) the contract, the other party has the option to accept this repudiation. If they do, the contract is discharged. If they don't, the contract remains in force, and they must continue to perform their obligations.

46. How does the concept of 'discharge by performance' apply to divisible contracts?

In divisible contracts, where performance can be separated into distinct parts, discharge by performance can occur in stages. Each divisible part of the contract can be discharged separately as it is performed.

47. What is the effect of a 'termination for convenience' clause on contract discharge?

A 'termination for convenience' clause allows one or both parties to discharge the contract at will, usually by giving notice. This provides flexibility but can also create uncertainty, as the contract can be ended without the need for breach or other justification.

48. What is the concept of 'discharge by abandonment'?

Discharge by abandonment occurs when both parties, through their conduct, demonstrate that they no longer intend to be bound by the contract. This mutual abandonment effectively discharges the contract without the need for formal termination.

49. How does the 'doctrine of substantial performance' affect contract discharge?

The doctrine of substantial performance allows for a contract to be considered fulfilled (and thus discharged) even if the performance is not perfect, as long as the essential purpose of the contract has been achieved. This prevents discharge for minor or inconsequential breaches.

50. What is the effect of 'discharge by accord and satisfaction' on future claims?

When a contract is discharged by accord and satisfaction, it generally precludes future claims related to the original obligation. The new agreement (accord) and its fulfillment (satisfaction) replace and extinguish the rights and obligations under the original contract.

51. How does the concept of 'anticipatory repudiation' relate to contract discharge?

Anticipatory repudiation allows a party to treat a contract as discharged before the time for performance if the other party clearly indicates (through words or conduct) that they will not perform their obligations when the time comes.

52. What is the role of 'discharge by operation of law' in involuntary bankruptcy?

In cases of involuntary bankruptcy, certain contracts may be discharged by operation of law. This means the bankrupt party is relieved of their contractual obligations without any specific action on their part, as it's a legal consequence of the bankruptcy process.

53. How does the 'doctrine of impossibility' differ across jurisdictions in terms of contract discharge?

The doctrine of impossibility, which can lead to contract discharge, is interpreted differently across jurisdictions. Some legal systems require absolute impossibility, while others may recognize degrees of impracticability or extreme difficulty as grounds for discharge.

54. What is the concept of 'discharge by disclaimer' in contract law?

Discharge by disclaimer occurs when a party, typically in a position of power (like a liquidator or trustee in bankruptcy), exercises a legal right to disclaim (reject) certain contracts. This act effectively discharges the contract, releasing both parties from their obligations.

55. How does the principle of 'election' affect contract discharge in cases of breach?

The principle of election requires the innocent party to choose between treating the contract as discharged due to the other party's breach or affirming the contract and seeking damages. Once an election is made, it generally cannot be reversed, affecting how and when the contract may be discharged.

56. What is the role of 'discharge by release' in contract law?

Discharge by release occurs when one party voluntarily agrees to free the other party from their contractual obligations. This is typically done through a formal release document and can result in either partial or complete discharge of the contract, depending on the terms of the release.

57. How does the concept of 'discharge by merger of rights' operate in contract law?

Discharge by merger of rights occurs when the same person becomes entitled to both sides of a contractual obligation. For example, if a creditor becomes the debtor's heir, the debt may be discharged as one cannot owe money to oneself. This principle leads to the automatic discharge of the affected contractual obligations.