What is Discharge of a Contract and its modes?

Discharge of a contract means termination of the contractual relations between the parties to a contract. A contract is said to be discharged when the rights and obligations of the parties under the contract come to an end.

Modes of discharge of contract

A contract may be discharged in various modes as discussed below:

Discharge by Performance

A contract can be discharged by performance in any of the following ways:

(a) By Actual Performance A contract is said to be discharged by actual per-formance when the parties to the contract perform their promises in accordance with the terms of the contract.

(b) By Attempted Performance or Tender A contract is said to be discharged by attempted performance when the promisor has made an offer of performance to the promisee but it has not been accepted by the promisee.

Discharge by Mutual Agreement

Since a contract is created by mutual agreement, it can also be discharged by mutual agreement. A contract can be discharged by mutual agreement in any of the following ways:

a) Novation [Section 62] Novation means the substitution of a new contract for the original contract. Such a new contract may be either between the same parties or between different parties. The consideration for the new contract is the discharge of the original contract.

 

(c) Rescission [Section 62] Rescission means cancellation of the contract by any party or all the parties to a contract.

(d) Alteration [Section 62] Alteration means a change in the terms of a contract with mutual consent of the parties. Alteration discharges the original contract and creates a new contract. However, parties to the new contract must not change.

(e) Remission [Section 63] Remission means acceptance by the promisee of a’ lesser fulfillment of the promise made. According to Section 63, “Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.”

(f) Waiver:  Waiver means intentional relinquishment of a right under the con-tract. Thus, it amounts to releasing a person of certain legal obligation under a contract.

Discharge by Operation of Law

A contract may be discharged by operation of law in the following cases:

(a) By Death of the Promisor A contract involving the personal skill or ability of the promisor is discharged on the death of the promisor. 

(b) By Insolvency When a person is declared insolvent, he is discharged from his liability up to the date of his insolvency. 

(c) By Unauthorised Material Alteration If any party makes any material alteration in the terms of the contract without the approval of the other party, the contract comes to an end.

(d) By the Identity of Promisor and Promisee When the promisor becomes the promisee, the other parties are discharged.

Discharge by Impossibility of Performance
The effects of impossibility of the performance of a contract may be discussed under the following two heads:

(a) Effects of Initial Impossibility
(b) Effects of Supervening Impossibility
(a) Effects of Initial Impossibility [Section 56] Initial impos­sibility means the impossibility existing at the time of making the contract. The effects of initial impossibility are as under void ab initio.

Such promisor must compensate for any loss which such promisee sustains through the non-performance of the promise. Example A contracts to marry B, being already married to C, and being forbidden by the law to which he is subject to practise polygamy. A must make compensation to B for the loss caused to her by the non-performance of his promise.