Discharge of Contracts
Sections 37 to 67 of the Indian Contract Act, 1872
In one minute
A contract is discharged when the duties it created come to an end. Most contracts end by performance. Others end by agreement, by a later event that makes performance impossible, by breach, by operation of law, or by lapse of time.
The reason matters. It decides who can still sue, who must refund, and who must pay damages. In exams, this topic is a list question: name each mode, give its section and add one example. In real life, it tells you what to do when a deal collapses.
Exam focus
- Frequency: Occasionally asked
- Usually asked as: Both (long answer and short answer)
Legal provision
- Section 37: the parties to a contract must either perform, or offer to perform, their promises. They are freed only if performance is dispensed with or excused under the Act or any other law. Promises also bind the representatives of a promisor who dies, unless the contract shows a different intention.
- Sections 38 to 55 and 67: how, when, where and by whom performance is made, and what follows if it is refused or delayed.
- Section 39: if a party refuses to perform, or disables himself from performing, the whole promise, the promisee may put an end to the contract.
- Section 56: a contract to do an act that later becomes impossible or unlawful becomes void when the act becomes impossible or unlawful.
- Section 62: if the parties agree to substitute a new contract, or to rescind or alter the old one, the original contract need not be performed.
- Section 63: a promisee may remit performance, extend the time, or accept any satisfaction he thinks fit.
- Sections 64 and 65: the effect of rescinding a voidable contract, and the duty to restore any advantage received under a void agreement or a contract that becomes void.
- Section 2(j): a contract that ceases to be enforceable by law becomes void when it ceases to be enforceable.
Meaning and definition
The Act does not define "discharge". In practice, a contract is discharged when the rights and duties it created are extinguished. After discharge, neither party can ask the other to perform.
The law starts from section 37: promises must be kept. Every mode of discharge answers one question: in what situation is a party freed from that duty?
The law gives this freedom in a few settled situations. The parties may have done what they promised. They may have agreed to let each other go. The law may excuse them. Or one party's breach may let the other walk away. The diagram shows the order in which to test them.
- 1. Did each party perform, or validly offer to perform, what was promised? (sections 37, 38)Yes: discharge by performance.
- 2. Did the parties agree to replace, cancel or change the contract, or did the promisee remit or accept other satisfaction? (sections 62, 63)Yes: discharge by agreement.
- 3. Did an event after the contract was made make performance impossible or unlawful? (section 56)Yes: discharge by impossibility (the doctrine of frustration).
- 4. Did one party refuse, fail or disable himself from performing? (sections 39, 53, 55)Yes: discharge by breach, if the other party chooses to end the contract.
- 5. Did the law itself end the contract, or has the time to sue run out?Yes: discharge by operation of law, or the remedy is barred by lapse of time. If none of the five applies, the contract is still in force.
Detailed explanation
Step 1: discharge by performance
This is the ordinary end of a contract. Each party does what he promised, and the duties are over. A promisor who makes a proper offer of performance, which the promisee refuses, is also protected. He is not responsible for non-performance and keeps his rights (section 38).
Example. Meena hires a tailor to stitch a suit for Rs 3,000 by 1 June. The tailor delivers the suit on time and Meena pays. The contract is discharged by performance.
Step 2: discharge by agreement
The parties can end their own contract. Section 62 covers novation (a new contract in place of the old), rescission (cancellation) and alteration (a change of terms). Section 63 lets the promisee remit performance, extend the time, or accept some other satisfaction (accord and satisfaction).
Example. Arun owes Bala Rs 50,000. Bala accepts Rs 40,000 on the due date in full settlement. The whole debt is discharged (section 63, illustration (b)).
Step 3: discharge by impossibility
If an event after the contract is made makes performance impossible, or unlawful through no fault of the promisor, the contract becomes void (section 56). This is the doctrine of frustration. The parties must then restore any advantage received (section 65).
Example. A hall is booked for a wedding on 15 December. An accidental fire destroys the hall on 1 December. Neither party is at fault. The contract is void and the advance must be refunded.
Step 4: discharge by breach
A breach does not end a contract by itself. It gives the other party a choice. He may treat the contract as ended and claim compensation, or he may keep it alive. If he keeps it alive, he cannot later claim that it ended (section 39). A breach may be actual (on or after the due date) or anticipatory (before it).
Example. A singer promises to sing twice a week for two months. On the sixth night she wilfully stays away. The manager may end the contract (section 39, illustration (a)).
Step 5: discharge by operation of law
Here the law ends the contract, whatever the parties want. The usual cases are these.
- Death of a party in a contract that needs his personal skill. The painter's contract in illustration (b) to section 37 cannot be enforced by or against his representatives.
- Insolvency, where the insolvency law frees the debtor from his debts.
- merger, for example when a contract debt becomes part of a court decree on it.
- Material alteration of a written document by one party without the other's consent. For negotiable instruments, this is dealt with in section 87 of the Negotiable Instruments Act, 1881.
Step 6: lapse of time
If a party does not sue within the period fixed by the Limitation Act, 1963, the suit is barred (section 3 of that Act). The law removes the remedy. It does not erase the debt. A written, signed promise to pay a time-barred debt is a valid contract (section 25(3)), and sections 60 and 61 let payments be applied to time-barred debts.
The modes at a glance
| Mode | Section | How the contract ends |
|---|---|---|
| Performance | 37 to 55 | Both parties perform, or a proper tender is refused |
| Agreement | 62, 63 | Novation, rescission, alteration, remission, extension of time, accord and satisfaction |
| Impossibility | 56 | An event after the contract makes performance impossible or unlawful. The contract becomes void |
| Breach | 39, 53, 55 | The innocent party elects to end the contract after a refusal, failure or disabling act |
| Operation of law | 37, and other Acts | Death in a personal contract, insolvency, merger, material alteration |
| Lapse of time | Limitation Act, 1963 | The remedy is barred. The right to the debt is not erased |
Don't confuse: discharge and performance
Performance is one way to discharge a contract. It is not the only way. Discharge is the wider idea.
| Point | Discharge | Performance |
|---|---|---|
| Meaning | The end of the duties under the contract, by any lawful route | Doing what was promised |
| Routes | Performance, agreement, impossibility, breach, operation of law, lapse of time | One route only |
| Effect on remedies | May leave a claim for damages or refund (sections 65, 73, 75) | Leaves nothing to claim |
Inside the idea. Kiran pays a supplier the full price and the supplier delivers the goods. Both promises are performed. This is discharge by performance.
Just outside it. Kiran and the supplier agree to cancel the order before delivery. Nothing is performed, yet the contract is discharged. This is discharge by agreement.
Common mistakes
- Writing that a contract ends only by performance. Five other routes exist.
- Saying that a breach ends the contract automatically. The innocent party must choose to end it.
- Saying that impossibility needs a choice. Under section 56 the contract becomes void by itself.
- Forgetting that discharge does not always cancel money claims. Refunds and damages may survive.
Apply it
Problem
Ravi promises to deliver 200 bags of cement to Shyam on 31 May at a fixed price. On 10 May Ravi writes that he will not deliver at all. Shyam has paid nothing. Which mode of discharge applies, and what may Shyam do?
Issue. Has the contract been discharged, and by which mode?
Rule. When a party refuses to perform the whole promise, the promisee may put an end to the contract (section 39). He cannot do so if he has shown by words or conduct that he accepts its continuance. Compensation follows under section 73.
Application. No one has performed, no agreement was made, and nothing made delivery impossible. Ravi refused before the due date. This is an anticipatory breach.
Conclusion. Shyam may treat the contract as ended and claim damages at once. He may instead keep the contract alive and wait until 31 May. The contract then stays binding on both sides.
Leading case laws
- Taylor v. Caldwell (1863)
Facts. Caldwell agreed to let the Surrey Gardens and Music Hall to Taylor on four days in 1861 for concerts, at £100 a day. The hall burned down by accident on 11 June 1861, before the first day. Taylor sued for his expenses.
Principle. A contract that depends on the continued existence of a thing carries an implied condition that both parties are excused if the thing perishes without their fault.
Why it matters. It is the origin of discharge by impossibility.
- Hochster v. De La Tour (1853)
Facts. De La Tour engaged Hochster as a courier from 1 June 1852. On 11 May 1852 he told Hochster his services would not be needed. Hochster sued on 22 May, before 1 June.
Principle. A clear refusal before the due date is a breach. The innocent party may sue at once.
Why it matters. It is the origin of anticipatory breach as a mode of discharge.
- Satyabrata Ghose v. Mugneeram Bangur & Co. (1954)
Facts. A land company sold building plots on a promise to build roads and drains. The Government requisitioned part of the land during the Second World War. The company said the contract was frustrated.
Principle. Section 56 is a complete Indian rule. "Impossible" is not limited to physical impossibility. A temporary hindrance, with no fixed time for performance, did not frustrate this contract.
Why it matters. It is the leading Indian authority on discharge by impossibility.
How to write this answer in the exam
5-mark answer
- Define discharge: the end of the rights and duties under a contract.
- Start from section 37: promises must be performed or offered.
- List the six modes in one line each, with sections.
- Give one example for performance and one for breach.
10-mark answer
- Meaning of discharge and section 37.
- Performance, with tender (section 38).
- Agreement: novation, rescission, alteration, remission, accord and satisfaction (sections 62, 63).
- Impossibility: section 56, Taylor v. Caldwell and Satyabrata Ghose.
- Breach: section 39, actual and anticipatory, Hochster v. De La Tour.
- Operation of law and lapse of time, then a short conclusion.
Key points to remember
- Discharge means the end of the duties under a contract. Performance is only one route.
- Section 37 is the starting rule: perform, or offer to perform.
- Agreement: sections 62 and 63. Impossibility: section 56. Breach: section 39.
- Impossibility makes the contract void by itself. Breach gives the innocent party a choice.
- Operation of law covers death in personal contracts, insolvency, merger and material alteration.
- Lapse of time bars the remedy but does not erase the debt.
- Money claims may survive discharge: refund under section 65, damages under section 73.
Quick self-test
1. Name the modes by which a contract can be discharged.
Performance, agreement, impossibility, breach, operation of law and lapse of time.
2. Which section says what happens when performance later becomes impossible?
Section 56. The contract becomes void when the act becomes impossible or unlawful.
3. Does a breach end a contract automatically?
No. The innocent party may choose to end it. He loses that right if he accepts its continuance by words or conduct (section 39).