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Made by:JATIN
HITESH

WHAT IS DISCHARGE OF
CONTRACT ?
As per 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 and end.

FOR EXAMPLE
e.g Two parties A & B Make a contract to build a flyover in a city .A

is the municipal authority of the city & B is the construction

company. Due to some reasons the contract get discharged. Then
the both parties are free from the obligations of contract, I,e. the
rights & obligations of the parties come to an end.

CONTRACT CAN DISCHARGED

BY:1.By
2.By
3.By
4.By
5.By
6.By

performance.
agreement
lapse of time.
operation of law.
impossibility of performance.
breach

DISCHARGE OF CONTRACT BY
PERFORMANCE
According to sec-37 of indian contract Act 1872 If both parties to the
contract have performed what they have agreed to do, the contract is
discharged.
Performance of obligation by parties to the contract puts an end to the
contract.

e.g. in our previous example A & B had a contract to

build a fly over . B build the fly-over in the prescribed
manner and A provides the consideration to B.
Here both parties performed their obligations &
rights , what they promised to do in the contract.
Thus the contract is come to an end by the
performance.

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:-

A.By Novation
B.Alteration
C.Rescission
D.Remission and waiver

A. BY NOVATION
When the parties to a contract agree to substitute the existing
contract,that is called NOVATION. In the well known case scarf vs.
jardine, it was stated that novation may involve either change of parties,
the contract remaining the same ,or change of contract between the
same parties. Hence , novation is of two kinds:
I.

change of parties:-There may be case that one party to the contract

may be substituted by another person. The original contract remains
same.

II. Substitution of a new agreement:- The parties may enter into a

new contract and the old contract is substituted by a new contract
between the same parties. The original contract is therefore discharged
and need not be performed.

 Example of change of parties :- A owes B certain sum of

money. 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
discharged and a new debt from C to B.
Example of substitution of a new agreement:- A owes B R.s
10000 . A enters into arrangement with B and gives B a mortgage
of his (As) estate for R.s 5000 in place of the debt. This is a new
contract and it extinguishes the old one.

B. ALTERATION
The term alteration may be defined as change in one or more terms of
the contract. In such cases the original contract is not wholly rescinded.
Only some terms of the original contract are varied and made inoperative
.the alteration is valid when it is made with the consent of all the
parties.A valid alteration discharges the original contract and parties
become bound by a new contract.
Example:- A agreed to supply B 50 bags of rice at the rate of r.s 300 per
bag the deleivery to be made in 5 equal instalment and the first supply to
commence from 1st june. Subsequently, A and b entered into an
agreement that the deleivery would be made in 2 instalment and price
will be R.s 100 per bag. In this case , the old contract is discharged and
parties are bound by the changed contract.

C. RECISSION
According to sec , 64 of ICA 1872- when a person at
whose option a contract is voidable rescinds it , the other
party thereto need not performance his promise. He is
discharged from his liability under the contract.
Rescission may occur by mutual consent of the parties or
when one party fails to perform his obligation the other
party may rescind the contract . Recission of a contract
cannot be in part only. The entire contract must
rescinded.

Example:- A promises to deliver

certain goods to B on a certain date.
Before that date they mutually agree
that the contract will not be
performed. This is a case of recission
by agreement.

D. REMISSION AND WAIVER

Waiver means abandoning the rights. According to sec. 63
of ICA 1872 when a party to the contract abandons or
waiver his rights, the contract is discharged.
e.g. A promise to paint picture for B . B afterwards forbid
him to do so.A is no longer bound to perform the promise.

DISCHARGE BY LAPSE OF
TIME.
Contract is discharged also by lapse of time.
If the creditor does not file a suit to recover his
debt amount from a debtor within a period of
limitation as laid down under the Limitation Act,
his remedy is debarred.
The contract is terminated by virtue of the
Limitation Act.and the creditor cannot recover his
debt.

EXAMPLE:-

For example- The period of

limitation to file a money suit is 3
years the creditor fails to file a suit
to recover his amount, the debtor is
discharged.

BY OPERATION OF LAW
A contract is discharged or terminated by
the operation of law, in the following case (i) By insolvency
(ii) By merger

1) BY INSOLVENCY
On a person adjudicated insolvent, he is released
from all his dates & liabilities probable in the
insolvency.
The rights and liabilities are transferred to an
official Receiver under the provnical Insolvency.
The insolvent is discharged from all his earlier
contract

2) BY MERGER
Merger of superior right into an inferior right.
For example- A was tenant of Bs house. A
purchase the house from B. Now , As rights as a
tenant merge into his ownership rights. The
tenancy agreement is discharged by mereger.

BY IMPOSSIBILITY OF
PERFORMANCE
According to sec. 64 of ICA 1872- when the performance of a
contract becomes subsequently impossible, the contract becomes
void.
It means that an agreement to do an act impossible in itself is void.
According to sec 23 & 24 Of ICA, An agreement becomes void, if
the consideration or object of contract or its part of which is
unlawful.
As per the honourable supreme court of Indias order in the SCC no
77, 1999(5)- Impossibility must be physical or legal impossibility.

e.g. A promises B to sell his horse on 1st june, but

before the day , the horse dies. Now its impossible
to fulfil the promise due to impossibility of
performance.
Such type of impossibilities in which at a time of
contract, contract was capable of being performed,
but subsequently its performance becomes
impossible is called SUPEREVENING
IMPOSSIBILITY.

BY BREACH OF
CONTRACT
According to sec. 39 of Indian contract Act 1872
when a party to contract has refused to perform,
or disable himself from performing his promise in
its entirely , the promise may put an end to the
contract.
In other words Breach of contract occurs where
a party refuses to perform his part of the promise.

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