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Unit 6: Discharge of Contract

6.2 Modes of Discharge of Contract Notes

A contract may be discharged by (i) performance; (ii) tender; (iii) mutual consent; (iv) subsequent
impossibility; (v) operation of law; (vi) breach.

6.2.1 Discharge of Contracts by Performance or Tender

The obvious mode of discharge of a contract is by performances that is where the parties have
done whatever was contemplated under the contract, the contract comes to an end. Thus, where A
contracts to sell his car to B for ` 1,85,000, as soon as the car is delivered to B and B pays the agreed
price for it, the contract comes to an end by performance. The tender or offer of performance has
the same effect as performance. If a promisor tenders performance of his promise but the other
party refuses to accept, the promisor stands discharged of his obligations.

6.2.2 Discharge by Mutual Consent (S.62)

If the parties to a contract agree to substitute a new contract for it, or to rescind it or alter it, the
original contract is discharged. A contract may terminate by mutual consent in any of the six
ways viz. novation, rescission, alteration and remission, waiver and merger. Novation means
substitution of a new contract for the original one. The new contract may be substituted either
between the same parties or between different parties. A owes money to B under a contract. 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 at an end and a new debt from C to B has been contracted.
In order that the new contract is valid, it is essential to have the consent of all the parties, including
the new one (s), if any. Also the contract which is substituted must be one capable of enforcement

in law. Thus, where the subsequent agreement is insufficiently stamped, and, therefore, cannot
be sued upon, novation does not become effective, that is, the original party shall continue to be
liable.
Section 62 explains the effect of novation. The original contract stands discharged. There need not
be any consideration for the new contract as the discharge of old contract is considered suffi cient
consideration for the new one. It is to be noted that novation must take place before the expiry of
the time of the performance of the original contract.

Example: A who owes B ` 2,00,000 enters into an arrangement with him thereby giving B a
mortgage of his estate for ` 1,50,000. This arrangement constitutes a new contract and terminates
the old one.

Rescission means cancellation of all or some of the terms of the contract. Where parties mutually
decide to cancel all or some of the terms of the contract, the obligation of the parties thereunder
terminates.

Alteration: If the parties mutually are to change certain terms of the contract, it has the effect of
terminating the original contract. There is, however, no change in the parties.
Remission (s.63): It is the acceptance of a lesser sum than what was contracted for or a lesser

fulfillment of the promise made. A owes B ` 5,000. A pays to B ` 1,000 and B accepts them in
satisfaction of his claim on A. This payment is a discharge of the whole claim. It may be noted
that the promisee may remit or give up a part of his claim and the promise to do so is binding
even though there is no consideration for doing so.

Example: A owes B ` 5,000. A pays to B who accepts, in satisfaction of the whole debt,
` 2,000 paid at the time and place at which ` 5,000 were payable. The whole debt is discharged.

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