Contract Law
Discharge of Contract
Learn every mode of discharge of contract, including performance, novation, remission, impossibility, breach and operation of law.
The short answer
Discharge ends a contractual duty by performance, agreement, impossibility, breach or another rule of law, but some remedial rights may survive.
What discharge actually means
Discharge concerns the end of contractual obligations. It does not automatically erase the contract's history or every right created before discharge.
By performance
The parties carry out their promises, or the promisor makes a valid offer of performance that the promisee refuses.
By agreement
The parties substitute, cancel or alter their bargain, or the promisee exercises the statutory power to remit or accept another satisfaction.
By impossibility
A valid contract later becomes impossible or unlawful within Section 56, subject to the contract's allocation of risk.
By breach
Actual failure or anticipatory repudiation may permit the innocent party to terminate future obligations and claim compensation.
By operation of law
A personal obligation may end on death, rights may merge, insolvency law may release liability, and limitation may bar the judicial remedy.
Performance and valid tender
Performance is the normal method of discharge. A proper tender protects a promisor when the promisee refuses to cooperate.
Complete performance
Each party must perform or offer to perform the promise according to its terms unless performance is excused under the Act or the contract.
Valid offer of performance
Section 38 requires an unconditional offer at the proper time and place, in circumstances allowing the promisee to verify the promisor's ability and willingness to perform the whole obligation.
Effect of refusal
A promisor making a valid tender is not responsible for non-performance caused by the promisee's refusal and does not lose rights under the contract.
Promisee's cooperation
Under Section 67, a promisor is excused to the extent that the promisee neglects or refuses reasonable facilities needed for performance.
Novation, rescission and alteration under Section 62
Section 62 rests on agreement between the relevant parties, but each route changes the original contract differently.
Novation
A valid new contract completely substitutes the old one. It may change the parties or replace the obligations, but all affected parties must consent.
Rescission by agreement
The parties mutually cancel the contract so that the original promises need not be performed.
Alteration
The parties agree to a material change while retaining the contractual relationship. A unilateral material alteration is not consensual discharge under Section 62.
Complete substitution
A later discussion, acknowledgment, security or payment schedule is not automatically novation. The documents and conduct must show an intention to extinguish the old contract in favour of the new one.
Remission and satisfaction under Section 63
Indian law gives the promisee a statutory power that is wider than the traditional English consideration rule.
Dispense or remit
The promisee may wholly or partly waive the promised performance.
Extend time
The promisee may allow a later date for performance.
Accept another satisfaction
The promisee may accept a different or smaller satisfaction. Fresh consideration is not required for the Section 63 remission itself.
Intention and acceptance
The evidence must show that the promisee accepted the substituted satisfaction as settling the obligation, not merely as a part payment while reserving the balance.
Impossibility, breach and operation of law
These modes arise from different legal events and should not be grouped under novation.
Supervening impossibility
Section 56 applies when a later event makes performance impossible or unlawful and the contract has not placed that risk on a party. Mere expense or commercial hardship is insufficient.
Anticipatory breach
Under Section 39, refusal or self-disablement before performance is complete allows the promisee to end the contract unless the promisee accepts its continuation by words or conduct.
Actual breach
Failure when performance is due can discharge the innocent party from future reciprocal performance where the breach justifies termination, while damages may remain claimable.
Death and personal skill
Death ends a promise requiring the promisor's personal skill or confidence. Other contractual rights and liabilities may pass to legal representatives, subject to the contract and law.
Merger, insolvency and limitation
A lower contractual right may merge into a higher right, insolvency can alter or release liabilities under statute, and limitation generally bars the court remedy rather than treating every underlying obligation as never existing.
What can survive discharge?
Always separate future primary duties from rights that arose before or because of discharge.
Accrued payment rights
An amount already earned or due may survive unless the settlement or statutory rule clearly releases it.
Damages
Termination for breach ends future performance but ordinarily leaves the innocent party's claim for compensation intact.
Restitution
Sections 64 and 65 may require benefits to be restored after rescission of a voidable contract or when an agreement is discovered void or a contract becomes void.
Arbitration and dispute terms
Whether a dispute clause survives depends on its separate character, wording and the legal basis on which the main contract ended. Do not assume either survival or extinction.
Leading cases and what they establish
Read each authority for the proposition it proves, the legal question it answers and the reasoning that supports the result.
Lata Construction v. Dr. Rameshchandra Ramniklal Shah
(2000) 1 SCC 586
Held: Novation under Section 62 requires complete substitution of a new contract in place of the old by agreement of the parties.
Why it matters: Use it where a later settlement is said to have extinguished earlier contractual rights.
Read the judgmentUnion of India v. Kishorilal Gupta and Bros.
AIR 1959 SC 1362
Held: The effect of a settlement depends on whether it substitutes the original contract, merely resolves claims under it, or operates as accord and satisfaction; intention is gathered from the agreement.
Why it matters: Use it for novation, settlements, accrued disputes and the survival of arbitration clauses.
Read the judgmentKapur Chand Godha v. Mir Nawab Himayatalikhan
AIR 1963 SC 250
Held: Once the creditor accepted the reduced payment in full satisfaction, Section 63 prevented a later claim for the balance.
Why it matters: Use it to show remission or substituted satisfaction without fresh consideration under Section 63.
Read the judgmentScarf v. Jardine
(1882) 7 App Cas 345
Held: Substitution of a new contracting party requires the consent of the parties concerned and releases the party under the old relationship.
Why it matters: Use it as the classic illustration of novation involving a change of parties.
Using this topic in a legal answer
A clear answer sequence
- Identify the event said to discharge the contract.
- Connect it to the correct statutory provision.
- For Section 62 or 63, prove consent, intention and the precise effect of the later arrangement.
- State which future obligations ended and which accrued rights remain.
- Address damages, restoration and dispute clauses separately.
Points that are often confused
- Calling every later agreement novation.
- Requiring fresh consideration for remission under Section 63.
- Assuming discharge removes every accrued claim.
- Treating commercial difficulty as impossibility under Section 56.
- Saying limitation always extinguishes the underlying right.
Open the revision and self-check sheet
Rules to retain
- Performance or valid tender is the normal mode of discharge.
- Section 62 covers novation, rescission and alteration by agreement.
- Novation requires complete substitution and necessary consent.
- Section 63 permits remission, extended time or another satisfaction.
- Fresh consideration is not required for remission under Section 63.
- Section 56 and Section 39 are distinct routes involving impossibility and breach.
- Discharge may leave accrued payment, damages, restitution or dispute rights.
Questions to test understanding
- What makes a later contract a novation?
- Does Section 63 require fresh consideration?
- Can rights already accrued survive discharge?
Questions students ask
Does every new agreement discharge the old one?
No. Novation requires a clear and complete substitution intended to extinguish the earlier contract.
Can a promisee accept a smaller performance?
Yes. Section 63 allows the promisee to remit or dispense with performance, extend time or accept another satisfaction.
What is the difference between novation and alteration?
Novation substitutes a new contract for the old. Alteration changes material terms by agreement while continuing the contractual relationship in its altered form.
Does discharge remove a claim for damages?
Not necessarily. Termination for breach usually ends future primary performance while preserving the innocent party's accrued claim for compensation.
Does an arbitration clause survive discharge?
It depends on the wording and legal basis of discharge. A dispute clause can be separable, but complete substitution or a settlement may affect its scope, as Kishorilal Gupta explains.
Is accepting part payment always full satisfaction?
No. The creditor must accept it as settlement of the obligation. A payment received merely on account does not by itself establish remission of the balance.
Primary sources and further reading
- Indian Contract Act, 1872 on India Code
- Lata Construction v. Dr. Rameshchandra Ramniklal Shah, Supreme Court of India
- Union of India v. Kishorilal Gupta and Bros., Supreme Court of India
- Kapur Chand Godha v. Mir Nawab Himayatalikhan, Supreme Court of India
This article is written for legal education. Verify the governing provision, applicable amendments and complete judgment before relying on a proposition in practice.