In Indian contract law, the discharge of a contract signifies the termination of contractual obligations, releasing parties from their duties. Understanding the various modes of discharge and their legal implications is crucial for law students.

1. MEANING AND DEFINITION

A contract is discharged when the obligations created by it come to an end or cease to operate, i.e., when the rights and obligations created by it are extinguished. This termination can occur through various modes, each with distinct legal consequences.

2. MODES OF DISCHARGE OF CONTRACT

a. Discharge by Performance

This is the most straightforward method, where both parties fulfill their respective obligations as per the contract terms. Performance can be:

• Actual Performance: Complete fulfillment of contractual duties by all parties.
• Attempted Performance (Tender): When a party offers to perform their obligation, but the other party refuses to accept it.

b. Discharge by Mutual Agreement

Parties may mutually decide to terminate the contract through:

• Novation: Substituting a new contract for the old one, either with the same or different parties. As per Section 62 of the Indian Contract Act, 1872, novation requires a valid reason, consent of all parties, and must occur before the original contract is breached. In Manohur Koyal v. Thakur Das (1888), the Calcutta High Court held that since the new bond was created after the breach of the original contract, the contract was discharged by breach, not novation.
• Rescission: Mutual agreement to cancel the contract, releasing parties from their obligations.
• Alteration: Changing one or more terms of the contract with mutual consent, leading to a new contract.
• Remission: Acceptance of a lesser performance than agreed. Section 63 of the Act allows a party to remit performance wholly or in part, extend the time for performance, or accept any other satisfaction instead of performance.
• Waiver: Voluntary relinquishment of a known right, discharging the other party from their obligation.
• Merger: When an inferior right under a contract merges into a superior right, leading to the discharge of the former.

c. Discharge by Lapse of Time

If a contract is not performed within a specified time, and no action is taken within the limitation period prescribed by the Limitation Act, 1963, the contract is discharged.

d. Discharge by Operation of Law

Contracts can be discharged by law in situations such as:

• Death: If the contract involves personal skills or abilities, the death of the concerned party discharges the contract.
• Insolvency: An insolvent person is discharged from liabilities incurred before adjudication.
• Merger: As previously discussed, merging an inferior right into a superior one.

e. Discharge by Supervening Impossibility (Doctrine of Frustration)

Under Section 56 of the Indian Contract Act, a contract becomes void if an act becomes impossible or unlawful after the contract is made, due to reasons beyond the control of the parties. In Taylor v. Caldwell (1863), a music hall was destroyed by fire before a concert, leading the court to hold that the contract was discharged due to impossibility.

f. Discharge by Breach

A breach occurs when a party fails to perform their obligations. It can be:

• Actual Breach: Failure to perform on the due date.
• Anticipatory Breach: One party indicates in advance that they will not perform their obligations.

In Hochster v. De La Tour (1853), the defendant informed the plaintiff before the start date that his services were no longer required, leading to an anticipatory breach.

3. CONSEQUENCES OF DISCHARGE

Upon discharge, parties are released from their contractual obligations. However, depending on the mode of discharge, certain consequences may follow:

• By Performance: Both parties fulfill their obligations, and the contract concludes satisfactorily.
• By Mutual Agreement: Parties may need to settle any partial performances or restitutions.
• By Breach: The aggrieved party may seek remedies such as damages, specific performance, or injunctions.

4. LEGAL PROVISIONS AND DOCTRINES

• Section 37: Obligations of parties to contracts.
• Section 56: Agreement to do an impossible act.
• Section 62: Effect of novation, rescission, and alteration of contract.
• Section 63: Promisee may dispense with or remit performance of promise.

5. KEY CASE LAWS

• Manohur Koyal v. Thakur Das (1888): Highlighted the distinction between novation and breach.
• Taylor v. Caldwell (1863): Established the doctrine of impossibility.
• Hochster v. De La Tour (1853): Addressed anticipatory breach.

6. DOCTRINES AND PRINCIPLES

• Doctrine of Frustration: A contract is discharged if an unforeseen event renders its performance impossible or unlawful.
• Principle of Novation: Allows substitution of a new contract, altering the parties’ obligations.

7. MAXIMS

• “Lex non cogit ad impossibilia”: The law does not compel a man to do that which he cannot possibly perform.