The document discusses various modes of discharge of a contract, including: 1) Discharge by performance or attempted performance when both parties fulfill their contractual obligations. 2) Discharge upon the death of a contracting party if the contract is personal in nature. 3) Discharge if performance becomes impossible or unlawful, such as if the subject matter is destroyed. 4) Discharge by mutual agreement through novation, rescission, alteration, or remission if the parties agree to replace or modify the original contract terms. 5) Discharge by operation of law after a specified time period has lapsed or if one party becomes insolvent.

1. Discharge of Contract
Mr. Amit Guleria (Double Medalist; Gold and Silver)
Assistant Professor,
Dr. B.R. Ambedkar National Law University Sonepat
Email: amitdbranlu@gmail.com

2. Meaning of Discharge of Contract: A contract creates certain obligations on one
or all parties involved. The discharge of a contract happens when these
obligations come to an end.
❖It refers to the termination of contractual obligations.
❖It signifies to remove liability or to get free from liability.
❖When a contract ceases to be binding, is discharge of contract.
❖There are various modes of discharge of contract.

3. Modes of Discharge of Contract
Discharge by performance.
Discharge by the death.
Impossibility of performance.
Discharge by mutual agreement:
Novation
Rescission
Alteration
Discharge of contract by remission.
Discharge of contract by operation of law.

4. 1. Discharge by Performance (Sections 37-38, ICA 1872)
It can either be Actual Performance or Attempted Performance:
1.1 Discharge by Actual Performance:
When the parties to a contract fulfil the obligations arising under the contract
within the time and manner prescribed, then the contract is discharged by actual
performance.
Example: Mr. ‘A’ agrees to sell his car to Mr. ‘B’ for Rs 1 Lakh to be paid by Mr.
‘B’ on the delivery of the car. As soon as the car is delivered, Mr. ‘B’ pays the
promised amount to Mr. ‘A’. It is said to be discharge of contract by actual
performance.

5. Section 37, ICA, 1872: Obligation of parties to contracts.—The parties to a contract
must either perform, or offer to perform, their respective promises, unless such
performance is dispensed with or excused under the provisions of this Act, or of any
other law.
Promises bind the representatives of the promisors in case of the death of such promisors
before performance, unless a contrary intention appears from the contract.
Illustrations
A promises to deliver goods to B on a certain day on payment of Rs. 1,000. A dies before
that day. A’s representatives are bound to deliver the goods to B, and B is bound to pay
the Rs. 1,000 to A’s representatives.
A promises to paint a picture for B by a certain day, at a certain price. A dies before the
day. The contract cannot be enforced either by A’s representatives or by B.

6. Liability in case when no legal heir is left: In Basanti Bai v. Prafulla Kumar
Routari (2006) 101 Cut LT 686 (Ori), the High Court said that, “ If the contract
is lawful and enforceable, then even if one of the parties to the contract dies
leaving no legal heir, the persons, who acquired the interest over the subject
matter of the contract through that deceased party would be bound by the
contract”.

7. 1.2 Discharge by Attempted Performance (Section 38, ICA, 1872)
It is possible that when the promisor attempts to perform his promise, the promisee
refuses to accept it. In such cases, it is called attempted performance or tender.
Section 38, ICA, 1872: Effect of refusal to accept offer of performance.— Where a
promisor has made an offer of performance to the promisee, and the offer has not been
accepted, the promisor is not responsible for non-performance, nor does he thereby lose
his rights under the contract.
Every such offer must fulfil the following conditions: —
(1) it must be unconditional;
(2) it must be made at a proper time and place, and under such circumstances that the
person to whom it is made may have a reasonable opportunity of ascertaining that the
person by whom it is made is able and willing there and then to do the whole of what he
is bound by his promise to do;

8. (3) if the offer is an offer to deliver anything to the promisee, the promisee must
have a reasonable opportunity of seeing that the thing offered is the thing which
the promisor is bound by his promise to deliver.
An offer to one of several joint promisees has the same legal consequences as an
offer to all of them.
Example: Suppose You ordered and online article, it was shipped but you denied
the same at the time of its delivery. Here, the attempt is made for the performance
but denied by one party for actual performance. Hence, both the parties are free
from their respective obligations as the attempted performance has taken place.

9. Essentials of Valid Performance:
i. It should be unconditional (Section 38, ICA, 1872);
ii. It should be performed by promisor or by his representative (Section 40, ICA, 1872);
iii.It should be performed at proper time specified in the agreement or within a
reasonable time (Sections 46-47, ICA, 1872);
iv.It should be performed at the place specified in the agreement or at the place to be
appointed by the promisee (Section 49, ICA, 1872).
v. The promisee must have reasonable opportunity to ascertain (a) the thing offered and
(b) whether the performance is of the whole or of a part (Section 38 (3), ICA, 1872.

10. 2. Discharge by the death of Contracting Parties, if contract is personal in its
character (Section 37, ICA, 1872).
If the contract is personal in its nature, it discharges the obligations on the death of either of
parties to contract.
Such an agreement does not include, the performance by the legal representatives of
promissor or promisee.
However, if it includes terms and conditions for the performance by legal representatives of
parties to contract, it is discharged on the performance of contracts by such legal
representatives.

11. 3. Discharge of Contract when Performance becomes Impossible or
Unlawful. (Section 56, ICA, 1872)/ Doctrine of Frustration
Section 56, ICA, 1872 Agreement to do impossible act. — An agreement to do
an act impossible in itself is void.
Contract to do an act afterwards becoming impossible or unlawful. — A contract to do an act
which, after the contract is made, becomes impossible, or, by reason of some event which the promisor
could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
Compensation for loss through non-performance of act known to be impossible or unlawful. —
Where one person has promised to do something which he knew, or, with reasonable diligence, might
have known, and which the promisee did not know, to be impossible or unlawful, such promisor must
make compensation to such promisee for any loss which such promisee sustains through the non-
performance of the promise.

12. Examples of Impossibility of performance or unlawfulness:
❖Destruction of the subject-matter essential to the performance.
❖A declaration of war.

13. 4. Discharge by Mutual Agreement of Parties (Sections 62-63, ICA, 1872)
Under this head discharge of contract can be either by ‘Novation’
‘Rescission’, ‘Alteration’ or by Remission. Novation, rescission,
and alteration are covered under Section 62, ICA, 1872. And
Remission is covered under Section 63, ICA, 1872.
Section 62, ICA, 1872 Effect of novation, rescission, and alteration of
contract.— 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 be performed.

14. Novation (Sec. 62)
If all parties to a contract mutually agree to replace the contract with a new one or annul or remit or
alter it, then it leads to a discharge of the original contract due to a mutual agreement.
When the parties to a contract agree to substitute the existing contract with a new contract, that is
called novation.
Example: Mr. ‘X’ agrees to Mr. ‘Y’ to supply 1 thousand bags of cement per week, in the year
2021. Later on, the production of cement was reduced and both the parties (Mr. ‘X’ and Mr. ‘Y’)
with the mutual consent of each other entered into a new contract replacing the 1st contract for the
supply of 700 bags of cement per week. Now, both the parties have been discharged the 1 contract
by way of mutual agreement through novation.
Rescission (Sec. 62)
When all or some of the terms of the contract are rescinded/cancelled, it is known as rescission of a
contract.

15. Alteration (Sec. 62)
When one or more of the terms of the contract is/are altered by mutual consent of
the parties to the contract, is called as alteration of a contract.
In United India Insurance Co. Ltd v. M.K.J. Corporation, (1996) 6 SCC 428 it
was held that even in good faith also in terms of the contract, no material
alteration can be made by a party without the consent of the other party to
contract.

16. 5. Discharge of Contract by Remission
Remission (Sec. 63)
It means the acceptance of lesser sum than what was due from the
promisor or acceptance of a lesser fulfillment of the promise made.
Section 63, ICA, 1872: Promisee may dispense with or remit
performance of promisee.— Every promisee may dispense with or
remit, wholly or in part, the performance of the promisee made to
him, or may extend the time for such performance1,or may accept
instead of it any satisfaction which he thinks fit.

17. 6. Discharge of Contract by Operation of Law
❖Discharge by lapse of time
If a specified period for performance of a contract is prescribed under The
Limitation Act, 1963. If the contract is not performed within that time period and
no legal action is taken by the promisee within the period of limitation, the
contract is discharged. Now, the parties are free from their obligations.
❖Insolvency or death of promissor

18. 7. Discharge by Breach of Contract
If a party to a contract fails to perform his obligation according to the time and place
specified, then he is said to have committed a breach of contract.
Also, if a party repudiates a contract before the agreed time of performance of a contract,
then he is said to have committed an anticipatory breach of contract.
In both cases, the breach discharges the contract. In the case of:
An actual breach: the promisee retains his right of action for damages.
An anticipatory breach of contract: the promisee cannot file a suit for damages. It also
discharges the promisor from performing his part of the contract.