Business Laws · Indian Regulatory Framework

Performance, Discharge and Breach of Contract

Updated 1 October 2026 · Fact-checked

Discharge of a contract means the parties' obligations come to an end. This happens by performance, agreement, impossibility, lapse of time, operation of law or breach. If one party breaks the contract, the other can sue for damages or other remedies. Solve questions by identifying the mode, applying the rule, then concluding.

Understand Performance, Discharge and Breach of Contract

A contract creates obligations. Discharge means those obligations end, so neither party can be sued on them any more. The exam asks two things: how did the contract end, and what can the injured party do if it ended by breach.

The main modes of discharge are: (1) performance, where both parties do what they promised; (2) mutual agreement, through novation, rescission, alteration or remission; (3) impossibility, including frustration; (4) lapse of time under the law of limitation; (5) operation of law, such as insolvency; and (6) breach.

Performance can be actual or by a valid tender (attempted performance). Under Section 38, if a valid tender of performance is refused by the promisee, the promisor is not responsible for non-performance, and does not lose his rights under the contract. A valid tender of money must be unconditional, and the full amount must be offered. A refused tender of money does not extinguish the debt. It only protects the debtor from liability for non-performance, including interest and costs. A tender of goods or services must give the promisee a reasonable chance to see that they are the goods or services contracted for.

Novation is replacing the old contract with a new one, either between the same parties or with a new party. Rescission is cancelling the contract, so the parties are freed from their obligations. Alteration is a change in the terms by agreement. Remission is accepting less than what was promised, or giving up the claim. Accord and satisfaction is a lesser or different performance accepted in discharge.

Impossibility is dealt with in Section 56. An agreement to do an act impossible in itself is void. A contract that becomes impossible, or unlawful, after it is made becomes void when the act becomes impossible. This is the doctrine of frustration. Examples are destruction of the subject matter, a change in law, or the event the contract was based on not taking place. Mere hardship, a rise in cost, or a delay in delivery is not enough.

Two further points. Under Section 56 (third paragraph), if a promisor knew, or with reasonable diligence could have known, that the act was impossible or unlawful, and the promisee did not know, the promisor must compensate the promisee for loss caused by the non-performance. Under Section 65, when a contract becomes void, any person who got an advantage under it must restore it, or compensate the other party for it.

Breach means failing to perform. Actual breach happens on or during the time for performance. Anticipatory breach happens before the due date, when one party declares they will not perform, or makes performance impossible by their own act. The innocent party can then treat the contract as ended and sue at once, or wait until the due date and keep the contract alive.

Remedies for breach include rescission, damages, quantum meruit (a reasonable sum for work already done), specific performance and injunction. Damages are meant to compensate, not to punish. Ordinary damages cover loss that arises naturally from the breach, or that both parties knew was likely when they made the contract. Remote or indirect loss is not recoverable.

Key rules to remember

Section 56: impossibility: Act impossible in itself = agreement void from the start. Act becomes impossible or unlawful later = contract void when the act becomes impossible; This is the base of the doctrine of frustration. Hardship or higher cost is not impossibility. A promisor who knew of the impossibility must compensate the promisee, and under Section 65 any advantage received must be restored.
Modes of discharge: Performance | Agreement | Impossibility | Lapse of time | Operation of law | Breach; Use this list as the opening line of any discharge answer.
Novation vs rescission: Novation = old contract replaced by a new one. Rescission = contract cancelled, nothing replaces it; Novation needs a new contract, and consent of all parties.
Anticipatory breach: Refusal or disabling act before due date = innocent party may sue at once or wait for due date; If the innocent party waits, the contract stays alive for both sides.
Measure of damages: Damages = loss that arises naturally from the breach, or that the parties knew was likely when contracting; Remote or indirect loss is not recoverable. The injured party must also try to reduce the loss.
Quantum meruit: Claim = reasonable remuneration for work done before the contract was stopped; Available when a contract is stopped after part performance, for example by the other party's breach. It is not limited to cases of prevention.

How to solve Performance, Discharge and Breach of Contract questions

Use this order for any problem on discharge or breach. It follows the provision, facts, conclusion structure, which earns step marks.

1Read the facts and mark what each party promised and what actually happened.
2Decide whether the contract ended by performance, agreement, impossibility, lapse of time, operation of law or breach.
3State the rule in one or two plain sentences, with the section number only if you are sure of it.
4Apply the rule to the facts. Use the names and figures from the question.
5If it is breach, decide whether it is actual or anticipatory.
6If it is impossibility, check whether the event happened after the contract and whether the act is truly impossible, not just costly.
7List the remedies the injured party can claim, such as damages, rescission, quantum meruit or specific performance.
8Close with a one-line conclusion that answers the exact question asked.

Quickest way: Three-line answer: Rule, Facts, Result

When to use it: Use this for short-answer questions and when time is tight in the subjective paper.

Line 1: name the mode of discharge or type of breach and state its rule.
Line 2: link two or three key facts from the question to the rule.
Line 3: give the result in plain words, for example 'the contract is void' or 'A can claim damages'.
For difference questions, write two or three points side by side, covering meaning, effect and the need for a new contract.

Common mistakes in Performance, Discharge and Breach of Contract

Treating novation and rescission as the same thing.
Both end the old contract by agreement.
Fix: Remember that novation always brings in a new contract. Rescission only cancels the contract.
Claiming frustration because the contract became costly or difficult.
Students confuse hardship with impossibility.
Fix: Check whether performance is truly impossible or unlawful, or whether the basis of the contract has gone. If it is only costly, the contract stands.
Saying the innocent party must sue immediately on anticipatory breach.
Students remember only one option.
Fix: Write that the innocent party has a choice. They may treat the contract as ended and sue at once, or wait until the due date.
Awarding damages for every loss, including remote or indirect loss.
Students assume damages mean full compensation.
Fix: State that damages cover only loss arising naturally or known to be likely. Remote loss is not payable.
Forgetting that a promisor is not freed when a valid tender is refused.
Students think refusal cancels the contract.
Fix: Write that a valid tender refused by the promisee protects the promisor from liability for non-performance, but the contract is not cancelled and a money debt is not extinguished.
Writing only the rule and no conclusion.
Students run short of time.
Fix: Always end with a one-line result tied to the facts.

Worked examples

Example 1

A agrees to sell his house to B. Before the date of sale, A tells B that he will not sell it. B wants to know his rights. Advise B.

Show the solution

Rule: When one party declares before the due date that they will not perform, it is an anticipatory breach.
Facts: A has refused to sell before the date fixed for the sale.
So A has committed an anticipatory breach.
B has two choices. He can treat the contract as ended and sue A for damages at once.
Or he can wait until the due date and see if A performs. The contract then stays alive for both parties.

Answer: A has committed an anticipatory breach. B may treat the contract as ended and claim damages immediately, or wait until the due date for performance.

Example 2

X agrees to let Y use his hall for a concert on a fixed date. Before that date the hall is destroyed by fire, without any fault of X. Y claims damages from X. Is Y entitled to them?

Show the solution

Rule: Under Section 56, a contract that becomes impossible after it is made becomes void when the act becomes impossible. This is frustration.
Facts: The hall was the subject matter of the contract. It was destroyed by fire after the contract, and not by X's fault.
Performance is now impossible, so the contract is void when the hall is destroyed.
X did not know of the fire when contracting, so the compensation rule for a promisor who knew of the impossibility does not apply. X is not liable for non-performance, so Y cannot claim damages.
Under Section 65, any advantage X received, such as an advance paid by Y, must be restored.

Answer: No. The contract is discharged by supervening impossibility under Section 56, so X is not liable to pay damages to Y. However, any advance paid by Y must be refunded to him under Section 65.

Exam tips

For 'difference between' questions, use short points: meaning, effect, need for a new contract, and an example.
Always list the modes of discharge first, then explain only the one the facts point to.
In case-style problems, name the party and quote one fact from the question in your application step.
For frustration, say the event must occur after the contract and be outside the parties' control.
Write the remedy by name, such as damages or quantum meruit, and give a one-line meaning for each.

Practice questions from Indian Regulatory Framework

Performance, Discharge and Breach of Contract: frequently asked questions

What is the difference between novation and rescission?

Novation replaces the old contract with a new one, which may be between the same parties or include a new party. Rescission cancels the contract, and nothing takes its place. Novation therefore needs a new contract, while rescission only ends the obligations.

What is anticipatory breach of contract?

It is a breach before the due date of performance. One party declares they will not perform, or makes performance impossible by their own act. The innocent party can then sue at once or wait until the due date.

When does the doctrine of frustration apply under Section 56?

It applies when performance becomes impossible or unlawful after the contract is made, due to events beyond the parties' control. Examples are destruction of the subject matter or a change in law. Higher cost or inconvenience alone is not enough.

What remedies are available for breach of contract?

The injured party can rescind the contract, claim damages, claim quantum meruit for work done, ask for specific performance or seek an injunction. The right remedy depends on the facts. Damages are meant to compensate loss, not to punish.