This document discusses the various ways in which a contract can be discharged or terminated. It defines discharge of a contract as when the contractual relationship between parties ends and their rights and obligations cease. A contract may be discharged through performance, agreement/consent of parties, impossibility of performance, lapse of time, operation of law, or breach. Specific modes of discharge discussed include novation, rescission, alteration, remission, waiver, and merger. Remedies for breach of contract that are available include rescission, damages, quantum meruit, specific performance, and injunction.

1. Discharge of Contract
Ajay Nath Dubey

2. Discharge/Termination of
Contract
Discharge of a contract means termination of
contractual relation between the parties to a
contract. In other words, a contract is
discharged when it ceases to operate i.e. when
the rights and obligations created by it comes
to an end.
A contract may be discharged:
 By performance
 By agreement or consent
 By impossibility of performance
 By lapse of time
 By operation of law
 By breach of contract

3. 1) Discharge by performance
Discharge by 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. It may be:
1. Actual performance
2. Attempted performance or tender of
performance.

4. 2) Discharge by agreement or consent
As it is the agreement of the parties which
binds them, so by there further agreement
or consent the contract may be terminated.
The general rule of law is a thing may be
destroyed in the same manner in which
it is constituted. This means a contractual
obligation may be discharged by a
agreement which may be expressed or
implied.
The various cases of discharge of a
contract by mutual agreement are dealt
with in Section 62 and 63 and are
discussed below:

5. Cont…
Novation (Sec.62):- Novation takes places
 When substitution of a new contract for the original
one between the same parties.
 The consideration for the new contract is mutually
being the discharge of old contract.
 Novation should take place before the expiry of the
time of the performance of the original contract.
Rescission (Sec.62):- Rescession of a contract
takes place when all or some of the terms of the
contract are cancelled. It may occur:
 By mutual consent of the parties (or)
 Where one party fails in the performance of his
obligation. In such a case, the other party may
rescind the contract without claiming compensation
for the breach of contract.
In case of recession, only the old contract is
cancelled and no new contract comes to exist in its

6. Cont…
Alteration (Sec. 62):- Alteration means
a change in one or more terms of a
contract with mutual consent of the
parties. In such a case the old contract
is discharged.
Remission (Section.63): Remission
means acceptance of a lesser fulfillment
of the promise made or acceptance of a
sum lesser than what was contracted
for.

7. Cont…
Waiver (Sec. 63):- When a contracting party fails
to perform his obligation under the contract, the
other party may rescind the contract and may
waive the promisor or release. This is called as
Waiver.
It takes place when the parties to a contract
agree that they shall no longer be bound by the
contract.
Merger: Merger takes place when an inferior
right accruing to a party under a contract merges
into a superior right accruing to the same party
under the same or some other contract.
 Ex: "P" holds a property under a lease. He later
buys the property. His rights as a lessee merge
into his rights as a owner.

8. 3) Discharge by impossibility of
performance
If an agreement contains an undertaking
to perform an impossibility, it is void.
This rule is based on the following:
 The law does not recognize what is
impossible.
 What is impossible does not create an
obligation.
According to Sec. 56, impossibility of
performance may fall into either of the
following categories:

9. Cont…
 Impossibility existing at the time of
agreement:- Sec. 56{1} lays down that an
agreement to do an act impossible in itself
is void. This is known as pre-contractual or
initial impossibility.
 Impossibility arising subsequent to the
formation of contract:- Impossibility
which arises subsequent to the formation
of contract (which could be perform at the
time when the contract was entered into) is
called post-contractual or supervening
impossibiliy.

10. 4) Discharge by lapse of time
The Limitation Act, 1963 lays down
that a contract should be perform within
a specified period called period of
limitation. If it is not perform & if no
action is taken by the promisee within
the period of limitation, he is deprived of
his remedy at law. In other words, we
may say that the contract is terminated.

11. 5) Discharge by operation of
law
A contract may be discharged by
operation of law which takes place:
 By Death: If contracts involving
personal skill or ability of the promisor,
the contract is discharged/terminated
on the death of the promisor.
 By insolvency: When a person is
adjudged insolvent, he is discharged
from all liabilities incurred prior to his
adjudication.

12. Cont…
 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.
 By rights and liabilities becoming
vested in the same person: When the
rights and liabilities under a contract
vests in the same person, the other
parties are discharged.

13. 6) Discharge by breach of contract
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 breath of contact.
2. Anticipatory breath of contact

14. Cont…
 Actual breach of contract: Actual breach
means promisor's failure to perform the promise
on due date of performance. When a promisor
fails or refuses to perform the promise upon the
due date for performance then it is called actual
breach of contract.
 Anticipatory Breach of contract: It occurs
when a party to executory contract declares his
intention of not performing the contract before
the performance is due. It may take place in two
ways.
a) Expressly by words
b) Implied by the conduct
 Ex: A person contracts to sell a particular horse
to another on 1st of June and before the due
date he sells the horse to somebody else.

15. Remedies for breach of
contract
Parties to a lawful contract are bound to
perform their respective promises but
when one of the parties terminates the
contract by refusing to perform his
promise, he is said to have committed a
breach of contract.
Breach of contract is not an unlawful act
because the Contract Act accommodates
it. It is quite likely that a person may not
keep his promise but the act has made
provisions for remedies for the injured

16. Remedies available to the
aggrieved party
In the case of breach of contract, the
following remedies are available to the
aggrieved party:
 Rescission of the contract
 Damages
 Quantum meruit
 Specific performance of the contract
 Injunction

17. 1) Rescission of the contract
When there is breach of contract by one
party, the aggrieved party may rescind the
contract & need not perform his part of the
contract. The aggrieved party has to file a
suit for rescission & when rescission is
granted, the aggrieved party is absolved
from all his obligations under the contract.
Ex: A promises to deliver a table to B on 5
Feb & B promises to make the payment on
delivery. If A does not deliver the table on
the fixed date, B need not make the
payment.

18. 2) Damages
Damages are the monetary compensation
allowed to the aggrieved party for the loss or
injury suffered by him by the breach of contract.
The fundamental principle underlying damages
is not punishment but compensation for the
pecuniary (having to do with money) loss which
naturally flows from the breach.
The primary purpose of awarding damages is to
put the aggrieved party in the same position in
which he would have been had the contract
been perform.
"If actual loss is not proved, no damages will be
awarded“.

19. Types of damages
 Ordinary or General damages:- Ordinary
damages are generally the difference
between contract price and market price in
sale of such damages which arise naturally
in usual course of things from the breach of
contract.
 Special damages:- These are damages
which the aggrieved party may claim
besides general damages for any loss he
has suffered owing to special
circumstances known to both the parties at

20. Cont…
 Vindictive or exemplary damages:- They
are quite heavy in amount and are
awarded by way of punishment only in the
following two cases:
a) Breach of contract to marry
b) Dishonor of a customer’s cheque by the
bank without any proper reason.
 Nominal damages:- They are awarded
in cases where there is a technical
breach but the injured party has not
suffered any loss. In order to establish
the rights of the injured party, such
damages are awarded. The amount may
be even a rupee.

21. Cont…
 Damages for inconvenience and
discomfort: Damages can be recovered
for physical inconvenience and
discomfort. If, how ever the
inconvenience or discomfort caused by a
breach is substantial, the damages can
be recovered on the ground of fairness.
 Mitigation of damages: It is the duty of
the injured party to take all reasonable
steps to mitigate the loss caused by the
breach. He cannot claim compensation
or loss which is really due not to the
breach but due to his own neglect.

22. 3) Quantum Meruit
The word quantum meruit literally means
“as much as earned” or “according to
the quantity of work done”. When the
person has begun the work & before he
could complete it, if the other party
terminates the contract or does
something which makes it impossible for
the other party to complete the contract,
he can claim for the work done under the
contract.
This claim arises in the following two
ways:
 Based on contract
 Based on quasi contract

23. a) Based on contract
 Where one party leaves the contract midway
or refuses to perform it: In such a case the
other party who has made part performance,
can claim payment on quantum meruit.
 Where a contract is not divisible & there is
part performance: In such a case the party
who has done part performance cannot get
payment from the party who has enjoyed the
benefit.
 When a indivisible contract is completed but
badly: In such a case the person who has
completed the work can claim payment but the
other party can make a deduction as he is not
fully satisfied.

24. Cont…
 Express or implied contract without
mentioning remuneration: Where there
is an express or implied contract to render
some service but no remuneration is fixed
then some reasonable amount is payable.
What is reasonable shall be determined by
the principle of quantum meruit.
 When a contract becomes void: A
contract may become void midway with
part performance by some party. He is
entitled to receive payment for his part
performance.

25. b) Based on quasi contract
 Where a person receive something
from another person: Not
gratuitously, then the person receiving
such benefit must pay the party from
whom he has receive it.
 Where there is a breach of contract:
Where one party breaks the contract,
the injured party may claim payment
from his part performance.

26. 4) Specific performance of the
contract
In some cases where damages are
not an adequate remedy or actual
damages cannot be measured, the
court may direct the party who has
broken the contract to actually perform
his promise.
Specific performance of the contract
may be directed by the court in the
following circumstances:

27. Cont…
 Where damages are not an adequate
relief. This happens in cases where the
subject matter of the contract is
unique or rare & no substitute is
available in the market.
 Where it is not possible to ascertain
the amount of damages, specific
performance may be ordered.
In contracts for sale of land & rare
articles, court generally order for specific
performance of the contract.

28. 5) Injunction
Where a party is in breach of a negative
term of the contract i.e. where he is
doing something which he promise not to
do. The court may by issuing an order
restrain him from doing what he
promised not to do.
Ex: N, a film actor agreed to act
exclusively for W for a year & for no one
else. During the year, he contracted to
act for Z. It was held that he could be
restrain by injunction from doing so.