Learning Outcome

• Explain the meaning and modes of

discharge of contract.
• Comprehend the legalities to perform a
contract.
 DISCHARGE OF CONTRACT

• It means “termination” of a contractual

relationship between the parties.
• By discharge the rights and obligations of
the parties come to an end.
Modes of Discharge of Contract
• Discharge by Performance
• Discharge by lapse of time
• Discharge by breach of contract
• Discharge by agreement or consent
• Discharge by operation of law
• Discharge by impossibility
 How is the contract discharged?
1. By performance – This is the most pleasant end of a
contract when a contract is duly performed by both the
parties and nothing more remains to be done.
The performance may be either actual or attempted
performance.
Peter agrees to sell his cycle to John for an amount of Rs
10,000 to be paid by John on the delivery of the cycle. As soon
as it is delivered, John pays the promised amount. Has the
contract discharged???
2. By Lapse of time
(Period of limitation) (e.g. - pay within 3
years)

.
Peter takes a loan from John and agrees to pay instalments every
month for the next five years. However, he does not pay even a
single instalment. John calls him a few times but then gets busy
and takes no action. Three years later, he approaches the court to
help him recover his money. Can he win???
 3. By Breach of contract
(breach is breaking the obligation which a contract imposes)

Breach of contract means refusal of performance by a party.

When a party in a contract has refused to perform, or disabled
himself from performing his promise in its entirety, the
aggrieved party may put an end to the contract unless he has
waived his right expressly or impliedly.
Breach of contract may either be actual breach or
anticipatory breach.
 Example of Breach of
Contract
• X, a dance artist entered into a contract with Y to
perform at his theatre every night during next month. Y
agreed to pay hum Rs. 750 for each night. On 10th night
X Wilfully absented herself from the theatre.
Such absenteeism amounts to breach of contract?
4. By Agreement
4. By Agreement/ Consent
- Novation (replacing old with new contract, should
take place before the expiry of contract)
- new contract with same parties
- same contract with different party/parties
- Rescission (cancellation)
by mutual consent
when one party fails to perform
X promised to deliver certain goods to Y on a certain
date. Before the date of performance X and Y mutually
agreed that the contract would not be performed. Is
the contract stands discharged????
- Alteration(changes in the terms of contract)

P Contracted to deliver a rolling machine to Q at

Rs50,000 after six month. Because of the increase in
price of the spare parts of the rolling machine, P was
unable to deliver the machine at agreed price (
Rs50,000) and increased the price of rolliung machine
to Rs60,000. Decide in this case the Contract b/w P &
Q is discharged or not??
- Waiver (to give up the rights under the contract)

P and B entered into a contract, according to which P had to supply

1000 pairs of ready made dresses to B on January 10. Where the date
of formation of contract was January 1. On 2nd January P told to B that
those dresses were out of fashion and hence not possible to assemble
100 paitrs. Still B said that though he ( B) supplied 1000 pairs by taking
a lot of risk, B could not sell them because those were outdated. Thus
Mutual understanding, they have terminated their contract.
- Remission
- where a party to contract agrees to:
(a) accept a lesser amount for full discharge of
contract
(b) extends the time of performance

In short, accepts the contract with condition

Example- X the promise agreed to accept Rs 2000 from
Y in full satisfaction of a claim of Rs 5000, the
promise os enforceable and the promise cannot in
future bring a suit for the recovery of Rs 5000.
5. By Operation of Law
- Insolvency
- Death
- Merger
- By right and liability going into the
hands of the same party
 Merger

Peter rents John’s apartment for two years. One year into the
contract, he offers to buy the property from John, who agrees.
The enter a sale contract and Peter becomes the owner of the
apartment. Here Peter has two rights; one accorded by the lease
agreement making him the renter and second by the sale
agreement making him the owner. Is the contract of lease
discharged???
6. By Impossibility of Performance

(i) Impossibility existing at the time of

agreement (void)/Pre-contractual/
Initial
- whether known to the parties
- or unknown to the parties

( where the promisor knows about the

impossibility the he is liable to pay
compensation to promisee )
 Impossibility falls in the
following two categories:

• Initial Impossibility- It means impossibility at the time of

Formation of the contracts.
• Subsequent Impossibility- Sometimes a contract is
capable of being performed when it was formed, but
some subsequent event renders the performance
impossible. In such a case also the contracts become
void.
Supervening impossibility
(ii) Impossibility arising subsequent to
the formation of the contract/
Post-Contractual/ Subsequent
 Supervening impossibility
- 1. Destruction of subject-matter

A music hall was let for a series of concerts

on certain days. The hall was burnt down
before the date of the first concert. The
contract was held to be void.
 Supervening impossibility
- 2. Non-existence/non-occurrence of particular
state of things
(e.g. party goes mad)
For E.g. P and B contract to marry each other.
Unfortunately, before the time fixed for
marriage P goes mad. The Contract becomes
Void.
 Supervening impossibility
- 3. Death/ Incapacity for personal service

- Example- a boy was engaged for 5 years to perform

as a drummer for all the seven nights in a week
whenever the band had business. But on contract of
Illness, he was certified to be able to perform only 4
nights, the contract was held to have been frustrated
because of personal incapacity to perform.
 Supervening impossibility
- Change of law

Example – there was a contact b/w X and

Y to supply of oilseeds of a specific
quality. But the Indian Govt. rendered
the sale and purchase of oilseeds illegal.
Both parties were discharged from
performance of such contract.
 Supervening impossibility
- 4. Outbreak of war
- Contracts Entered into during war with
an alien enemy are void initially.
- Even after the peace returns , they
remain void and of no effect.
- 5. Non-Existence or Non-occurrence pf
particular state of things.
 MCQ
Q1 A contract stands discharged by
• A) Performance
• B) Substituted Agreement
• C) Impossibility of performance
• D) All the Above
 MCQ
• Q2 - If a new contract is substituted in
place of an existing contract it is called
A) Alteration
B) Rescission
C) Novation
D) Wavier
E) Remission
 MCQ
• Q3. – A lends Rs 500 to B. He later tells B
that he need not to repay the amount, the
contract is Discharged by
A) Breach
B) Waiver
C) Novation
D) Performance
 MCQ
• Q4. A contract has became more difficult
of performance due to some
uncontemplated events or delays. The
contract –
A) Is discharged
B) Is not discharged
C) Becomes void
D) Becomes voidable
 MCQ
Q5 – Where a contract could not be
performed because of the default by a third
person on whose work the promisor relied it
A) Is not discharged
B) Is discharged
C) Becomes void
D) Becomes voidable.
 MCQ
• Q 6 A agrees to deliver 500 tons of wheat
to B and B promises to pay the relevance
price on delivery Here A Does ……… and
B Does …………
A) An Act, a promise
B) A promise, an act
C) An act, an act
D) A promise, a Promise
 MCQ Answer key
• Q1 –D
• Q2- C
• Q3- A
• Q4- B
• Q5- B
• Q6- D