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Unit 5: Discharge of Contract

in the contract. In this type of assignment, the parties to the contract are not active; it is the law Notes
which operates. In the case of assignment by act of parties, the parties themselves make the
assignment.
The rules regarding assignment of contracts are:

Firstly, the obligations or liabilities under a contract cannot be assigned except by novation. Thus,
if A owes B ` 10,000, he cannot transfer his obligation to pay to C and compel B to collect money
from C. However, if the promisee agrees to such an assignment he will be bound by it. In such
a case a new contract is substituted for the old one. This is called ‘novation’. Thus, in the above
example, if B agrees to accept payment from C, the assignment will be valid and A shall stand
discharged of his obligation to pay.

Secondly, rights and benefits under a contract may be assigned. For example, where A owes B

` 10,000, B may assign his right to C. However, a right or benefit under a contract cannot be

assigned if it involves personal skill, ability, credit or other personal qualifications. For example,
a contract to paint a picture personally cannot be assigned.
Thirdly, the rights of a party under a contract may amount to actionable claims which can be
assigned by a written document. Notice of the assignment is to be given to the debtor to make it
valid.

5.4 Different modes of Discharge of Contracts [Ss.73-75]

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

5.4.1 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.

5.4.2 Meaning of 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.

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